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Monetary Stimulus: Through Wall Street or Main Street?

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  • Diego E. Vacaflores

    (Texas State University - San Marcos)

Abstract

In the last couple of years we have observed a variety of tools used to stimulate the economy, from the tax rebates of 2008 to the monetary infusion to the financial institutions in 2009. At the same time loud questioning of the perceived favoritism for the financial system has emerged, with suggestions that recoveries should also include infusions to “Main Street” to propel consumption bursts that promote economic activity and growth. A simple limited participation model is developed to examine the effect of alternative distributions of monetary injections, through the financial intermediaries or through consumers, on the main macroeconomic aggregates of the small open economy. It is found that the higher the proportion of the monetary injection channeled through the consumers leads to a less vigorous recovery of output, but diminishes the negative effect on the utility of the representative household.

Suggested Citation

  • Diego E. Vacaflores, 2011. "Monetary Stimulus: Through Wall Street or Main Street?," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 14(1), pages 9-40, June.
  • Handle: RePEc:blv:journl:v:14:y:2011:i:1:p:9-40
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    References listed on IDEAS

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    More about this item

    Keywords

    Optimal monetary policy; monetary injections; recoveries; theoretical modeling; small open economies.;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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