Optimal Unconventional Monetary Policy in the Face of Shadow Banking

Philipp Kirchner () and Benjamin Schwanebeck
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Philipp Kirchner: University of Kassel

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: Using a DSGE framework, we discuss the optimal design of monetary policy for an economy where both retail banks and shadow banks serve as fi?nancial intermediaries. We get the following results. During crises times, a standard Taylor rule fails to reach sufficient stimulus. Direct asset purchases prove to be the most effective unconventional tool. When maximizing welfare, central banks should shy away from interventions in the funding process between retail and shadow banks. Liquidity facilities are the welfare-maximizing unconventional policy tool. The effectiveness of unconventional measures increases in the size of the shadow banking sector. However, the optimal response to shocks is sensitive to the resource costs of the implementation which may differ across central banks. Hence, optimal unconventional monetary policy is country-speci?c.

Keywords: ?nancial intermediation; shadow banking; ?financial frictions; unconventional policy; optimal policy (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2017
New Economics Papers: this item is included in nep-ban, 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 (4)

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