The Theory of Unconventional Monetary Policy

Roger Farmer and Pawel Zabczyk

No 11196, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 with the goal of stabilizing economic activity. 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 will change equilibrium asset prices and we prove that, in our model, a policy in which the central bank stabilizes non-fundamental fluctuations in the stock market is Pareto improving and self-fi nancing.

Keywords: Qualitative easing; Unconventional monetary policy; Sunspots (search for similar items in EconPapers)
JEL-codes: E02 E6 G11 G21 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Working Paper: The theory of unconventional monetary policy (2016)
Working Paper: The Theory of Unconventional Monetary Policy (2016)
Working Paper: The theory of unconventional monetary policy (2016)
Working Paper: The Theory of Unconventional Monetary Policy (2016)
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