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Optimal Stabilization Policy with Search Externalities

Berentsen, Aleksander and Waller, Christopher. (2015) Optimal Stabilization Policy with Search Externalities. Macroeconomic Dynamics, 19 (3). pp. 669-700.

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Official URL: http://edoc.unibas.ch/39853/

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Abstract

We study optimal monetary stabilization policy in a DSGE model with microfounded money demand. A search externality creates ‘congestion’ which causes aggregate output to be inefficient. Due to the informational frictions that give rise to money, households are unable to perfectly insure themselves against aggregate shocks. This gives rise to a welfare improving role for monetary policy that works by adjusting the nominal interest rate in response to these shocks. Optimal policy is determined by choosing a set of state-contingent nominal interest rates to maximize the expected lifetime utility of the agents subject to the constraints of being an equilibrium.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Wirtschaftstheorie (Berentsen)
UniBasel Contributors:Berentsen, Aleksander
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:Cambridge University Press
ISSN:1365-1005
Note:Publication type according to Uni Basel Research Database: Journal article
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Last Modified:22 Nov 2018 14:57
Deposited On:17 May 2016 08:24

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