(Un)anticipated Monetary Policy in a DSGE Model with a Shadow Banking System

Fabio Verona, Manuel Martins and Ines Drumond ()

International Journal of Central Banking, 2013, vol. 9, issue 3, 78-124

Abstract: Motivated by the U.S. events of the 2000s, we address whether a too low for too long interest rate policy may generate a boom-bust cycle. We simulate anticipated and unanticipated monetary policies in state-of-the-art DSGE models and in a model with bond financing via a shadow banking system, in which the bond spread is calibrated for normal and optimistic times. Our results suggest that the U.S. boom-bust was caused by the combination of (i) too low for too long interest rates, (ii) excessive optimism, and (iii) a failure of agents to anticipate the extent of the abnormally favorable conditions.

JEL-codes: E32 E44 E52 G24 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (62)

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Related works:
Working Paper: (Un)anticipated monetary policy in a DSGE model with a shadow banking system (2013)
Working Paper: (Un)anticipated monetary policy in a DSGE model with a shadow banking system (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2013:q:3:a:3

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