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Optimal quantitative easing in a monetary union

Serdar Kabaca, Renske Maas, Kostas(Konstantinos) Mavromatis and Romanos Priftis

European Economic Review, 2023, vol. 152, issue C

Abstract: This paper explores the optimal allocation of government bond purchases within a monetary union, using a two-region DSGE model, where regions are asymmetric with respect to portfolio characteristics: the extent of substitutability between assets of different maturity and origin, asset home bias, and levels of government debt. An optimal QE policy under commitment does not only reflect different region sizes, but is also a function of these portfolio characteristics. By calibrating the model to the euro area, we show that optimal QE favors purchases from the smaller region (Periphery instead of Core), given that the former faces stronger portfolio frictions.

Keywords: Optimal monetary policy; Quantitative easing; Monetary union; DSGE model; Portfolio rebalancing; Zero lower bound (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 F45 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Optimal Quantitative Easing in a Monetary Union (2020) Downloads
Working Paper: Optimal quantitative easing in a monetary union (2020) Downloads
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DOI: 10.1016/j.euroecorev.2022.104342

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