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

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

No 10250, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper gives money a role in providing cheap collateral in a model of banking; this means that, besides the Taylor Rule, monetary policy can affect the risk-premium on bank lending to firms by varying the supply of M0 in open market operations, so that even when the zero bound prevails monetary policy is still effective; and fiscal policy under the zero bound still crowds out investment via the risk-premium. A simple rule for making M0 respond to credit conditions can substantially enhance the economy's stability. Both price-level and nominal GDP targeting rules for interest rates would combine with this to stabilise the economy further. With these rules for monetary control, aggressive and distortionary regulation of banks' balance sheets becomes 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: C1 E3 E44 E52 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Related works:
Journal Article: Monetarism rides again? US monetary policy in a world of Quantitative Easing (2016)
Working Paper: Monetarism rides again? US monetary policy in a world of Quantitative Easing (2014)
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