Schüder, Stefan (2011): Monetary policy trade-offs in a portfolio model with endogenous asset supply. Published in: Center for European, Governance and Economic Development Research Discussion Paper No. 127 (27. June 2011): pp. 1-53.
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This paper develops an open economy portfolio balance model with endogenous asset supply. Domestic producers ﬁnance capital goods through credit and bonds in accordance with debt capital costs as well as through equity assets. Private households hold a portfolio of domestic and foreign assets, shift balances depending on risk-return considerations, and maximise real consumption in accordance with the real exchange rate.
Within this general equilibrium model, it can be shown that expansive monetary interventions, being applied throughout the course of economic crises, stabilise the real amount of domestic investments at the cost of inﬂation, currency devaluation, distortions of interest rates, and risk clusters on the central bank’s balance sheet. Furthermore, through exchange rate stabilising interventions, the central bank is able to stabilise the real amount of domestic investments and in turn the main goal of exchange rate stabilisation is also achieved. However, either risk clusters on central bank’s balance sheet or changes in the domestic price level emerge. This consequently results in both types of central bank interventions promoting an inefficient international allocation of real capital investments.
|Item Type:||MPRA Paper|
|Original Title:||Monetary policy trade-offs in a portfolio model with endogenous asset supply|
|Keywords:||portfolio balance; monetary policy; macroeconomic risk; exchange rate; real capital investments|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General
|Depositing User:||Stefan Schüder|
|Date Deposited:||05. Jul 2011 14:03|
|Last Modified:||14. Feb 2013 07:25|
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