Misallocation Costs of Digging Deeper into the Central Bank Toolkit

Robert J. Kurtzman and David Zeke
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Robert J. Kurtzman: https://www.federalreserve.gov/econres/robert-j-kurtzman.htm

No 2017-076, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Central bank large-scale asset purchases, particularly the purchase of corporate bonds of nonfinancial firms, can induce a misallocation of resources through their heterogeneous effect on firms cost of capital. First, we analytically demonstrate the mechanism in a static model. We then evaluate the misallocation of resources induced by corporate bond buys and the associated output losses in a calibrated heterogeneous firm New Keynesian DSGE model. The calibrated model suggests misallocation effects from corporate bond buys can be large enough to make them less effective than government bond buys, which is not the case without accounting for misallocation effects.

Keywords: QE; LSAPs; Misallocation (search for similar items in EconPapers)
JEL-codes: E22 E51 E52 G21 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2017-08-03
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://www.federalreserve.gov/econres/feds/files/2017076pap.pdf (application/pdf)

Related works:
Journal Article: Misallocation Costs of Digging Deeper into the Central Bank Toolkit (2020)
Working Paper: Misallocation Costs of Digging Deeper into the Central Bank Toolkit (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-76

DOI: 10.17016/FEDS.2017.076

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