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Leaning Against Windy Bank Lending

Giovanni Melina and Stefania Villa

No 5317, CESifo Working Paper Series from CESifo

Abstract: Using an estimated dynamic stochastic general equilibrium model with banking, this paper first provides evidence that monetary policy reacted to bank loan growth in the US during the Great Moderation. It then shows that the optimized simple interest-rate rule features virtually no response to the growth of bank credit. However, the welfare loss associated to the empirical responsiveness is small. The sources of business cycle fluctuations are crucial in determining whether a “leaning-against-the-wind” policy is optimal or not. In fact, the predominant role of supply shocks in the model gives rise to a trade-off between inflation and financial stabilization.

Keywords: lending relationships; augmented Taylor rule; Bayesian estimation; optimal policy (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: LEANING AGAINST WINDY BANK LENDING (2018) Downloads
Working Paper: Leaning Against Windy Bank Lending (2017) Downloads
Working Paper: Leaning Against Windy Bank Lending (2014) Downloads
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