BIROn - Birkbeck Institutional Research Online

    Financial frictions and robust monetary policy in the models of New Keynesian framework

    Pirozhkova, Ekaterina (2017) Financial frictions and robust monetary policy in the models of New Keynesian framework. Working Paper. Birkbeck, University of London, London, UK.

    [img]
    Preview
    Text
    26667.pdf - Draft Version

    Download (675kB) | Preview

    Abstract

    In this paper I study how financial frictions affect robustness of monetary policy in DSGE models in the case of model uncertainty. The types of frictions I consider are financial accelerator and collateral constraints. Modeling monetary policy in terms of optimal interest rate rules, I find that welfare-maximizing policies for the models with financial frictions are robust to model uncertainty. Policy rule optimal for the basic New Keynesian model is not robust. Thereby I show that when there is uncertainty about what type of frictions is at work, a policymaker exposes economy to risks of significant welfare losses by using a reference model without frictions as economy representation. Using fault tolerance approach I find that modified policy rule optimal for the basic New Keynesian model is robust when it allows to respond to uctuations in output.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BCAM 1701; ISSN 1745-8587
    Keyword(s) / Subject(s): Optimal monetary policy rules, Financial frictions, DSGE models, Robust- ness.
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 21 Mar 2019 16:19
    Last Modified: 28 Jul 2019 20:14
    URI: http://eprints.bbk.ac.uk/id/eprint/26667

    Statistics

    Downloads
    Activity Overview
    30Downloads
    155Hits

    Additional statistics are available via IRStats2.

    Archive Staff Only (login required)

    Edit/View Item Edit/View Item