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Unconventional Optimal Open Market Purchases

Author

Listed:
  • Chao Gu

    (University of Missouri)

  • Joseph Haslag

    (University of Missouri)

Abstract

We build a model in which verifiability of private debt and a timing mismatch in debt settlements can lead to a liquidity problem in the financial market. The central bank can respond to the liquidity problem by adopting an unconventional monetary policy that purchases private debts in the open market. This policy is effective if the timing mismatch is nominal (i.e., a settlement participation risk). It is ineffective if the limited participation is driven by a real shock (i.e., preference shock). (Copyright: Elsevier)

Suggested Citation

  • Chao Gu & Joseph Haslag, 2014. "Unconventional Optimal Open Market Purchases," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 543-558, July.
    • Handle: RePEc:red:issued:12-194
    DOI: 10.1016/j.red.2013.08.004
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    References listed on IDEAS

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    Cited by:

    1. Kee-Youn Kang, 2019. "Central Bank purchases of private assets: An evaluation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 326-346, January.
    2. Ádám Balog & György Matolcsy & Nagy Márton & Balázs Vonnák, 2014. "Credit crunch in Hungary between 2009 and 2013: is the creditless period over?," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 13(4), pages 11-34.

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    More about this item

    Keywords

    Unconventional monetary policy; Liquidity problem; Timing mismatch; Leveraging; Liquidity shock; Settlement risk; Consumption shock;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G01 - Financial Economics - - General - - - Financial Crises

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