(Un)anticipated Monetary Policy in a DSGE Model with a Shadow Banking System

Forschungsbereich: Macroeconomics, Monetary Policy
Forscher: Inês Drumond,
Manuel Martins,
Fabio Verona
Datum: 1.6.2012

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 nancing 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.

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