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  3. American Economic Review
  4. May 2016
  5. Sooner or Later: Timing of Monetary Policy with Heterogeneous Risk-Taking

Sooner or Later: Timing of Monetary Policy with Heterogeneous Risk-Taking

  • Dong Beom Choi
  • Thomas M. Eisenbach
  • Tanju Yorulmazer
American Economic Review
vol. 106, no. 5, May 2016
(pp. 490-95)
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Abstract

We 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.

Citation

Choi, Dong Beom, Thomas M. Eisenbach, and Tanju Yorulmazer. 2016. "Sooner or Later: Timing of Monetary Policy with Heterogeneous Risk-Taking." American Economic Review, 106 (5): 490-95. DOI: 10.1257/aer.p20161077

Additional Materials

JEL Classification

  • E22 Investment; Capital; Intangible Capital; Capacity
  • E52 Monetary Policy