Quantitative Easing under Incomplete Markets: Optimality Conditions for Stationary Policy

Matthew Hoelle

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: In a stochastic economy, the rebalancing of short and long term government debt positions can have real e ects when markets are incomplete. Monetary policy aims to harnass these real e ects to maximize social welfare. The policy rules can either be stationary, in which the current policy choice vector only depends on the current shock realization, or nonstationary, in which the policy choice vector is recursively updated. This paper characterizes the conditions under which a stationary policy rule is optimal.

Keywords: monetary policy rules; asset span; term structure of interest rates; Markov equilibrium (search for similar items in EconPapers)
JEL-codes: D52 E43 E44 E52 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1277

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