Sooner or Later: Timing of Monetary Policy with Heterogeneous Risk-Taking
- (pp. 490-95)
AbstractWe analyze the effects and interactions of monetary policy tools that differ in terms of their timing and their targeting. In a model with heterogeneous agents, more productive agents endogenously expose themselves to higher interim liquidity risk by borrowing and investing more. Two inefficiencies impair the transmission of monetary policy: an investment- and a hoarding inefficiency. Heterogeneous agents respond disparately to ex-ante, conventional and ex-post, unconventional monetary policy. However, we show that the two policies are equivalent due to the endogeneity of hoarding. In contrast, targeted interventions such as discount-window lending can alleviate both inefficiencies at the same time.
Citation2016. "Sooner or Later: Timing of Monetary Policy with Heterogeneous Risk-Taking." American Economic Review, 106 (5): 490-95. DOI: 10.1257/aer.p20161077
- E22 Investment; Capital; Intangible Capital; Capacity
- E52 Monetary Policy