Designing QE to overcome the lower bound constraint on interest rates in a fiscally sound monetary union

Tilman Bletzinger and Leopold von Thadden

VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking from Verein für Socialpolitik / German Economic Association

Abstract: This paper develops a model of a fiscally sound monetary union and analyses central bank purchases of long-term debt (QE). Employing the portfolio balance channel, we show that there exists an interest rate rule augmented by QE at the lower bound which replicates the equilibrium allocation and the welfare level of a hypothetically unconstrained economy. We show further that the symmetry of QE depends on whether the monetary union is characterised by asymmetric shocks or asymmetric structures.

JEL-codes: E43 E52 E61 E63 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc17:168176

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