Optimal monetary policy, asset purchases, and credit market frictions

Konferenzbeitrag

We examine how borrowing constraints affect monetary transmission and the trade-off of a welfare maximizing central bank. We develop a sticky price model where money serves as the means of payment and ex-ante identical agents borrow/lend among each other. The credit market is distorted as borrowing is constrained by available collateral, while the distortion is amplified under higher nominal interest rates. We show that the central bank cannot implement first best and that optimal monetary policy mainly aims at stabilizing prices. We further demonstrate that central bank purchases of loans can alleviate the borrowing constraint and enhance social welfare.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2014: Evidenzbasierte Wirtschaftspolitik - Session: Optimal Monetary and Fiscal Policy ; No. C05-V3

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Monetary Policy ; Business Fluctuations; Cycles

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schabert, Andreas
• Event: Veröffentlichung
• (who): ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
• (where): Kiel und Hamburg
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/100619
• Last update: 10.03.2025, 11:44 AM CET