Unconventional government debt purchases as a supplement to conventional monetary policy

Martin Ellison and Andreas Tischbirek

No 3/2013, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: In response to the Great Financial Crisis, the Federal Reserve and the Bank of England have adopted unconventional monetary policy instruments. We investigate if one of these, purchases of long-term government debt, could be a valuable addition to conventional short- term interest rate policy even if the main policy rate is not constrained by the zero lower bound. To do so we add a stylised financial sector and central bank asset purchases to an otherwise standard New Keynesian DSGE model. Asset quantities matter for interest rates through a preferred habitat channel. If conventional and unconventional monetary policy instruments are coordinated appropriately then the central bank is better able to stabilise both output and inflation.

Keywords: Quantitative Easing; Large-Scale Asset Purchases; Preferred Habitat; Optimal Monetary Policy (search for similar items in EconPapers)
JEL-codes: E40 E43 E52 E58 (search for similar items in EconPapers)
Date: 2013
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Journal Article: Unconventional government debt purchases as a supplement to conventional monetary policy (2014)
Working Paper: Unconventional government debt purchases as a supplement to conventional monetary policy (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2013_003

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