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    Leaning against windy bank lending

    Melina, Giovanni and Villa, Stefania (2014) Leaning against windy bank lending. Working Paper. Birkbeck, University of London, London, UK.

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    Abstract

    Using a dynamic stochastic general equilibrium model with banking, this paper first provides evidence that, during the Great Moderation, monetary policy leaned against the wind blowing from the loan market in the US. It then shows that the extent to which this occurred delivers a small welfare loss relative to the optimised simple interest-rate rule that features only a response to inflation. The source of business cycle fluctuations is crucial for the optimality of a leaning-against-the-wind policy. In fact, the pro-cyclical nature of lending creates a trade-off between inflation and financial stabilisation when supply shocks are prevalent.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BCAM 1402; ISSN 1745-8587
    Keyword(s) / Subject(s): lending relationships, augmented Taylor rule, Bayesian estimation, optimal policy.
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Research Centres and Institutes: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 21 Mar 2019 16:14
    Last Modified: 02 Aug 2023 17:49
    URI: https://eprints.bbk.ac.uk/id/eprint/26586

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