(Un)anticipated monetary policy in a DSGE model with a shadow banking system

Fabio Verona, Manuel Martins and Inês Drumond

No 4/2013, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: Motivated by the U.S. events of the 2000s, we address whether a too low for too long interest rate policy may generate a boom-bust cycle. We simulate anticipated and unanticipated monetary policies in state-of-the-art DSGE models and in a model with bond financing via a shadow banking system, in which the bond spread is calibrated for normal and optimistic times. Our results suggest that the U.S. boom-bust was caused by the combination of (i) interest rates that were too low for too long, (ii) excessive optimism and (iii) a failure of agents to anticipate the extent of the abnormally favourable conditions.

Keywords: DSGE model; shadow banking system; too low for too long; boom-bust (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 G24 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: (Un)anticipated Monetary Policy in a DSGE Model with a Shadow Banking System (2013)
Working Paper: (Un)anticipated monetary policy in a DSGE model with a shadow banking system (2012)
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