Unwinding Quantitative Easing: State Dependency and Household Heterogeneity
Cristiano Cantore and
Pascal Meichtry
Working papers from Banque de France
Abstract:
his paper studies the asymmetry in the macroeconomic effects of central bank asset market operations induced by state dependency and the associated role of household heterogeneity. We build a New Keynesian model with borrowers and savers in which quantitative easing and tightening operate through portfolio rebalancing between short-term and long-term government bonds. We highlight the significance of an occasionally binding zero lower bound in explaining a weaker aggregate impact of asset sales relative to asset purchases. In this context, when close to the lower bound, raising the nominal interest rate prior to unwinding quantitative easing mitigates the economic costs of monetary policy normalization. Furthermore, our results imply that household heterogeneity in combination with state dependency amplifies the revealed asymmetry, while household heterogeneity alone does not enhance the aggregate effects of asset market operations.
Keywords: Unconventional Monetary Policy; Quantitative Tightening; Quantitative Easing; Heterogeneous Agents; Zero Lower Bound (search for similar items in EconPapers)
JEL-codes: E21 E32 E52 E58 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2024
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
https://www.banque-france.fr/system/files/2024-07/WP955_0.pdf
Related works:
Journal Article: Unwinding quantitative easing: State dependency and household heterogeneity (2024) 
Working Paper: Unwinding quantitative easing: state dependency and household heterogeneity (2023) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:955
Access Statistics for this paper
More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().