This paper studies monetary policy in models where multiple assets have different liquidity properties: safe and "pseudo-safe" assets coexist. A shock worsening the liquidity properties of the pseudo-safe assets raises interest rate spreads and can cause a deep recession- cum-deflation. Expanding the central bank's balance sheet fills the shortage of safe assets and counteracts the recession. Lowering the interest rate on reserves insulates market interest rates from the liquidity shock and improves risk sharing between borrowers and savers.

Safe assets, liquidity, and monetary policy / Benigno, Pierpaolo; Nisticò, Salvatore. - In: AMERICAN ECONOMIC JOURNAL. MACROECONOMICS. - ISSN 1945-7707. - 9:2(2017), pp. 182-227. [10.1257/mac.20150073]

Safe assets, liquidity, and monetary policy

BENIGNO, PIERPAOLO;NISTICO', SALVATORE
2017

Abstract

This paper studies monetary policy in models where multiple assets have different liquidity properties: safe and "pseudo-safe" assets coexist. A shock worsening the liquidity properties of the pseudo-safe assets raises interest rate spreads and can cause a deep recession- cum-deflation. Expanding the central bank's balance sheet fills the shortage of safe assets and counteracts the recession. Lowering the interest rate on reserves insulates market interest rates from the liquidity shock and improves risk sharing between borrowers and savers.
2017
Economics, Econometrics and Finance (all)2001 Economics, Econometrics and Finance (miscellaneous)
Safe assets, liquidity, and monetary policy / Benigno, Pierpaolo; Nisticò, Salvatore. - In: AMERICAN ECONOMIC JOURNAL. MACROECONOMICS. - ISSN 1945-7707. - 9:2(2017), pp. 182-227. [10.1257/mac.20150073]
File in questo prodotto:
File Dimensione Formato  
AEJMacro_2016.pdf

Open Access

Tipologia: Documento in Post-print
Licenza: DRM (Digital rights management) non definiti
Dimensione 879.69 kB
Formato Adobe PDF
879.69 kB Adobe PDF Visualizza/Apri
11385-173543.pdf

Solo gestori archivio

Tipologia: Versione dell'editore
Licenza: DRM (Digital rights management) non definiti
Dimensione 2.46 MB
Formato Adobe PDF
2.46 MB Adobe PDF   Visualizza/Apri
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11385/173543
Citazioni
  • Scopus 13
  • ???jsp.display-item.citation.isi??? 13
social impact