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Monetarism rides again? US monetary policy in a world of Quantitative Easing

Vo Phuong Mai Le, David Meenagh and A. Patrick Minford

Journal of International Financial Markets, Institutions and Money, 2016, vol. 44, issue C, 85-102

Abstract: In a model of banking we give money a role in providing cheap collateral; i.e. besides the Taylor Rule, monetary policy can affect the risk-premium by varying the supply of M0 in open market operations, so that even at the zero bound monetary policy is still effective, and fiscal policy still crowds out investment. A simple rule for making M0 respond to credit conditions can substantially enhance the economy’s stability. This, in combination with Price-level or nominal GDP targeting rules for interest rates, stabilises the economy further, making aggressive and distortionary regulation of banks’ balance sheets redundant.

Keywords: DSGE model; Financial frictions; Crises; Indirect Inference; Money supply; QE; Monetary policy; Fiscal multiplier; Zero bound (search for similar items in EconPapers)
JEL-codes: E3 E44 E52 C1 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Monetarism rides again? US monetary policy in a world of Quantitative Easing (2014) Downloads
Working Paper: Monetarism rides again? US monetary policy in a world of Quantitative Easing (2014) Downloads
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