Inside money, investment, and unconventional monetary policy

Lukas Altermatt

No 247, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: I develop a model that explicitly takes the role of financial institutions in the transmission mechanism of monetary policy into account. Within this model, I find various equilibrium environments, with one of them resembling a standard environment for monetary policy and another one akin to a liquidity trap. I analyze what the effects of various monetary policy measures such as quantitative easing, open-market operations, helicopter money and negative interest rates are in all of these environments. I find that open-market operations, quantitative easing, and negative interest rates on reserves are powerless in a liquidity trap, while helicopter money can be used to increase investment. The model also shows that a floor system allows a central bank to implement monetary policy with less side effects, but at the cost of losing control over inflation through open-market operations.

Keywords: New monetarism; liquidity trap; helicopter money; negative interest rates; government debt; Ricardian equivalence; banking; floor vs. channel system (search for similar items in EconPapers)
JEL-codes: E43 E52 E63 G21 H63 (search for similar items in EconPapers)
Date: 2017-03, Revised 2019-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: INSIDE MONEY, INVESTMENT, AND UNCONVENTIONAL MONETARY POLICY (2022)
Working Paper: Inside Money, Investment, and Unconventional Monetary Policy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:247

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