Sooner or Later: Timing of Monetary Policy with Heterogeneous Risk-Taking

Dong Beom Choi, Thomas Eisenbach and Tanju Yorulmazer

American Economic Review, 2016, vol. 106, issue 5, 490-95

Abstract: We analyze the effects and interactions of monetary policy tools that differ in terms of their timing and their targeting. In a model with heterogeneous agents, more productive agents endogenously expose themselves to higher interim liquidity risk by borrowing and investing more. Two inefficiencies impair the transmission of monetary policy: an investment- and a hoarding inefficiency. Heterogeneous agents respond disparately to ex-ante, conventional and ex-post, unconventional monetary policy. However, we show that the two policies are equivalent due to the endogeneity of hoarding. In contrast, targeted interventions such as discount-window lending can alleviate both inefficiencies at the same time.

JEL-codes: E22 E52 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.p20161077
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Citations: View citations in EconPapers (6)

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