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A sunspot-based theory of unconventional monetary policy
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Farmer, Roger E. A. and Zabczyk, Pawel (2022) A sunspot-based theory of unconventional monetary policy. Macroeconomic Dynamics, 26 (1). pp. 186-217. doi:10.1017/S1365100520000127 ISSN 1365-1005.
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Official URL: https://doi.org/10.1017/S1365100520000127
Abstract
This paper is about the effectiveness of qualitative easing, a form of unconventional monetary policy that changes the risk composition of the central bank balance sheet. We construct a general equilibrium model where agents have rational expectations, and there is a complete set of financial securities, but where some agents are unable to participate in financial markets. We show that a change in the risk composition of the central bank’s balance sheet affects equilibrium asset prices and economic activity. We prove that, in our model, a policy in which the central bank stabilizes non-fundamental fluctuations in the stock market is self-financing and leads to a Pareto efficient outcome.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||
Divisions: | Faculty of Social Sciences > Economics | ||||||||
Library of Congress Subject Headings (LCSH): | Monetary policy, Securities, Banks and banking, Central | ||||||||
Journal or Publication Title: | Macroeconomic Dynamics | ||||||||
Publisher: | Cambridge University Press | ||||||||
ISSN: | 1365-1005 | ||||||||
Official Date: | January 2022 | ||||||||
Dates: |
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Volume: | 26 | ||||||||
Number: | 1 | ||||||||
Page Range: | pp. 186-217 | ||||||||
DOI: | 10.1017/S1365100520000127 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Reuse Statement (publisher, data, author rights): | This article has been accepted for publication in a revised form for publication in Macroeconomic Dynamics. https://www.cambridge.org/core/journals/macroeconomic-dynamics | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Copyright Holders: | © International Monetary Fund | ||||||||
Date of first compliant deposit: | 11 March 2020 | ||||||||
Date of first compliant Open Access: | 17 March 2020 | ||||||||
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