Optimal Credit, Monetary, and Fiscal Policy under Occasional Financial Frictions and the Zero Lower Bound

Shifu Jiang

International Journal of Central Banking, 2022, vol. 18, issue 1, 151-197

Abstract: I study optimal credit, monetary, and fiscal policy under commitment in a model where financial intermediaries face an occasionally binding financial constraint; the monetary authority faces a zero lower bound; and the fiscal authority faces a budget constraint. Financial and productivity shocks can generate a trade-off between inflation stability and financial stability, which is resolved in favor of the latter. As the ZLB prevents full-scale monetary easing and financial distress disrupts the transmission mechanism, monetary policy should be relatively tight in normal times for precautionary reasons. However, monetary policy should be eased in response to large productivity shocks regardless of the sign. The policy based on optimized simple rules features too-aggressive credit interventions and insufficient monetary easing relative to the Ramsey policy.

JEL-codes: C61 E44 E52 E6 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ijcb.org/journal/ijcb22q1a4.pdf (application/pdf)
http://www.ijcb.org/journal/ijcb22q1a4.htm (text/html)

Related works:
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:ijc:ijcjou:y:2022:q:1:a:4

Access Statistics for this article

International Journal of Central Banking is currently edited by Loretta J. Mester

More articles in International Journal of Central Banking from International Journal of Central Banking
Bibliographic data for series maintained by Bank for International Settlements ().