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

Arbeitspapier

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) too low for too long interest rates, (ii) excessive optimism and (iii) a failure of agents to anticipate the extent of the abnormally favorable conditions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMFS Working Paper Series ; No. 56

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Monetary Policy ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
• Subject: DSGE model ; shadow banking system ; too low for too long ; boom-bust

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Verona, Fabio ; Martins, Manuel M. F. ; Drumond, Inês
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)
• (where): Frankfurt a. M.
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/97743
• URN: urn:nbn:de:hebis:30:3-268698
• Last update: 10.03.2025, 11:41 AM CET