Unconventional Policy and Idiosyncratic Risk

Salvatore Nisticò and Marialaura Seccareccia ()
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Marialaura Seccareccia: Department of Economics and Finance, LUISS Guido Carli

No 7/22, Working Papers from Sapienza University of Rome, DISS

Abstract: Idiosyncratic risk and cyclical inequality imply additional channels that amplify the transmission of persistent balance-sheet policies, through their effects on private sector's expectations and consumption risk. Through these channels, unconventional monetary policy improves the central bank's ability to anchor expectations and rule out endogenous instability, whether or not the economy is in a liquidity trap. They also allow the central bank to optimally complement interest-rate policy in particular in response to financial shocks that expose the economy to the effective-lower-bound on the policy rate, and can promote a swifter exit from the liquidity trap.

Keywords: Cyclical inequality; idiosyncratic risk; optimal monetary policy; HANK; THANK, ELB. (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 E58 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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