This paper uses panel vector autoregressive models and simulations of an estimated DSGE model to explore the reaction of Euro area banks to the global financial crisis. We focus on their interest rate setting behavior in response to standard macroeconomic shocks. Our main empirical finding is...

How much have the dynamics of US time series and in the particular the transmission of innovations to monetary policy instruments changed over the last century? The answers to these questions that this paper gives are "A lot." and "Probably less than you think.", respectively. We use vector...

Abstract. Deviations of policy interest rates from the levels implied by the Taylor rule have been persistent after the turn of the century even before the financial crisis. These deviations could be due to lower real interest rates, as stated by the savings glut hypothesis as well as the...

This paper investigates optimal policy in the presence of anticipated (or news) shocks. We determine the optimal unrestricted and restricted policy response in a general rational expectations model and show that, if shocks are news shocks, the optimal unrestricted control rule under commitment...

Shocks in the financial sector caused the great recession of 2008 and pulled down the real economy. To implement financial dynamics in a stylized DSGE-framework we use behavioral elements in expectations to produce waves of bull and bear cycles in the financial intermediation process, that have...

With the Federal Funds rate approaching the zero lower bound, the U.S. Federal Reserve adopted a range of unconventional monetary policy measures known as Quantitative Easing (QE). Quantifying the impact QE has on the real economy, however, is not straightforward as standard tools such as VAR...

This paper investigates the risk-taking channel of monetary policy on the asset side of banks' balance sheets. We use a factor-augmented vector autoregression (FAVAR) model to show that aggregate lending standards of U.S. banks, e.g. their collateral requirements for firms, are significantly...

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...

This paper explores the potential effectiveness of the ECB s Outright Monetary Transaction (OMT) program in safeguarding an appropriate monetary policy transmission. Since the program aims at manipulating bank lending rates by conducting sovereign bond purchases on secondary markets, a stable...

Consequences of path-dependent supply side hysteresis on the market equilibrium are illustrated. Supply is only a subsystem of the entire market with its forcing variable (price) being endogenous from the perspective of the entire market. This results in feedbacks on the equilibrium of price and...