Abstract

https://ssrn.com/abstract=2862363
 


 



Optimal Policy Rules at Home, Crisis and Quantitative Easing Abroad


Paul D. McNelis


Gabelli School of Business, Fordham University

2016

BOFIT Discussion Paper No. 15/2016
Gabelli School of Business, Fordham University Research Paper No. 2862363

Abstract:     
This paper examines the international transmission of financial shocks which originate in, and are partially offset by, quantitative easing in a large financially-stressed country. Using a two-country model, we evaluate the adjustment in the non-stressed home country, following recurring negative shocks to productivity and banking-sector balance-sheet/terminal wealth ratios. We first examine the application of QE policies in the stressed foreign country. Coupling quantitative easing with crisis events abroad magnifies the financial instability transmitted to the rest of the world. Our results show that the non-stressed home country can make effective use of tax-rate rules for consumption, or taxes to stabilize financial-sector net worth in times of prolonged crisis abroad.

Number of Pages in PDF File: 29

Keywords: quantitative easing, financial frictions, unconventional monetary policy

JEL Classification: E44, E58, F38, F41


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Date posted: November 1, 2016  

Suggested Citation

McNelis, Paul D., Optimal Policy Rules at Home, Crisis and Quantitative Easing Abroad (2016). BOFIT Discussion Paper No. 15/2016; Gabelli School of Business, Fordham University Research Paper No. 2862363. Available at SSRN: https://ssrn.com/abstract=2862363

Contact Information

Paul D. McNelis (Contact Author)
Gabelli School of Business, Fordham University ( email )
113 West 60th Street
Bronx, NY 10458
United States

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