Monetary policy trade-offs in a portfolio model with endogenous asset supply
This paper develops an open economy portfolio balance model with endogenous asset supply. Domestic producers finance capital goods through credit and bonds in accordance with debt capital costs as well as through equity assets. Private households hold a portfolio of domestic and foreign assets, shift balances depending on risk-return considerations, and maximise real consumption in accordance with the real exchange rate. Within this general equilibrium model, it can be shown that expansive monetary interventions, being applied throughout the course of economic crises, stabilise the real amount of domestic investments at the cost of in ation, currency devaluation, distortions of interest rates, and risk clusters on the central bank's balance sheet. Furthermore, through exchange rate stabilising interventions, the central bank is able to stabilise the real amount of domestic investments and in turn the main goal of exchange rate stabilisation is also achieved. However, either risk clusters on central bank's balance sheet or changes in the domestic price level emerge. This consequently results in both types of central bank interventions promoting an ineffcient international allocation of real capital investments.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.cege.wiso.uni-goettingen.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harald Hau & Helene Rey, 2002.
"Exchange Rate, Equity Prices and Capital Flows,"
NBER Working Papers
9398, National Bureau of Economic Research, Inc.
- Joyce, Michael & Lasaosa, Ana & Stevens , Ibrahim & Tong, Matthew, 2010. "The financial market impact of quantitative easing," Bank of England working papers 393, Bank of England.
- Jonathan Heathcote & Fabrizio Perri, 2007.
"The international diversification puzzle is not as bad as you think,"
398, Federal Reserve Bank of Minneapolis.
- Jonathan Heathcote & Fabrizio Perri, 2013. "The International Diversification Puzzle Is Not as Bad as You Think," Journal of Political Economy, University of Chicago Press, vol. 121(6), pages 1108 - 1159.
- Jonathan Heathcote & Fabrizio Perri, 2004. "The international diversification puzzle is not as bad as you think," 2004 Meeting Papers 152, Society for Economic Dynamics.
- Jonathan Heathcote & Fabrizio Perri, 2007. "The International Diversification Puzzle Is Not As Bad As You Think," NBER Working Papers 13483, National Bureau of Economic Research, Inc.
- Jonathan Heathcote & Fabrizio Perri, 2013. "The international diversification puzzle is not as bad as you think," Working Papers 472, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Fabrizio Perri & Jonathan Heathcote, 2007. "The International Diversification Puzzle Is Not as Bad as You Think," Working Papers 2007-3, University of Minnesota, Department of Economics, revised 08 Oct 2007.
- Heathcote, Jonathan & Perri, Fabrizio, 2008. "The International Diversification Puzzle is Not as Bad as You Think," CEPR Discussion Papers 6982, C.E.P.R. Discussion Papers.
- Schwert, G William, 1989.
" Why Does Stock Market Volatility Change over Time?,"
Journal of Finance,
American Finance Association, vol. 44(5), pages 1115-53, December.
- G. William Schwert, 1988. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
- Christopher J. Neely, 2004.
"The Federal Reserve responds to crises: September 11th was not the first,"
Federal Reserve Bank of St. Louis, issue Mar, pages 27-42.
- Christopher J. Neely, 2003. "The Federal Reserve responds to crises: September 11th was not the first," Working Papers 2003-034, Federal Reserve Bank of St. Louis.
- Ariel Burstein & Christian Hellwig, 2008.
"Welfare Costs of Inflation in a Menu Cost Model,"
2008 Meeting Papers
1, Society for Economic Dynamics.
- Frankel, Jeffrey & Schmukler, Sergio L. & Serven, Luis, 2004.
"Global transmission of interest rates: monetary independence and currency regime,"
Journal of International Money and Finance,
Elsevier, vol. 23(5), pages 701-733, September.
- Jeffrey A. Frankel & Sergio L. Schmukler & Luis Serven, 2002. "Global Transmission of Interest Rates: Monetary Independence and Currency Regime," NBER Working Papers 8828, National Bureau of Economic Research, Inc.
- Merton, Robert C, 1974.
"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,"
Journal of Finance,
American Finance Association, vol. 29(2), pages 449-70, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Vladimir Klyuev & Phil De Imus & Krishna Srinivasan, 2009. "Unconventional Choices for Unconventional Times Credit and Quantitative Easing in Advanced Economies," IMF Staff Position Notes 2009/27, International Monetary Fund.
- Helg, Rodolfo & Manasse, Paolo & Monacelli, Tommaso & Rovelli, Riccardo, 1995. "How much (a)symmetry in Europe? Evidence from industrial sectors," European Economic Review, Elsevier, vol. 39(5), pages 1017-1041, May.
- Serletis, A & Moustas, Z, 1997.
"International Evidence on the Neutrality of Money,"
9704, Calgary - Department of Economics.
- Ozturk, 2006. "Exchange Rate Volatility and Trade: A Literature Survey," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 3(1), pages 85-102.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- repec:cup:cbooks:9780521274067 is not listed on IDEAS
- George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
- D. Wade Hands, 2010. "Stabilizing consumer choice: the role of 'true dynamic stability' and related concepts in the history of consumer choice theory," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 17(2), pages 313-343.
When requesting a correction, please mention this item's handle: RePEc:zbw:cegedp:127. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.