Misallocation Costs of Digging Deeper into the Central Bank Toolkit

Robert Kurtzman and David Zeke

Review of Economic Dynamics, 2020, vol. 38, 94-126

Abstract: Central bank large-scale asset purchases, such as the purchase of securities of nonfinancial firms, can induce a misallocation of resources through their heterogeneous effect on firm cost of capital. First, we analytically demonstrate the mechanism in a two-period model. We then evaluate the misallocation of resources induced by corporate security purchases and the associated output losses in a calibrated heterogeneous firm New Keynesian DSGE model. The calibrated model suggests misallocation effects from corporate security purchases can be large enough to make them less effective in increasing output than government bond buys. (Copyright: Elsevier)

Keywords: QE, LSAPs; Misallocation (search for similar items in EconPapers)
JEL-codes: E22 E51 E52 G21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Working Paper: Misallocation Costs of Digging Deeper into the Central Bank Toolkit (2017)
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DOI: 10.1016/j.red.2020.03.006

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