New DSGE model finds anticipated 'low for long' policy can cause a boom
A new paper from researchers at the Bank of Finland "highlights the central role that spreads may have on the transmission of monetary policy" by using a new DSGE model to analyse whether a ‘too low for too long' interest rate policy can generate a boom-bust cycle.
The paper: (Un)anticipated Monetary Policy in a DSGE Model with a Shadow Banking System, by Fabio Verona, Manuel Martins and Inês Drumond, finds that anticipated periods of too-low-for-too-long interest rates generate a much larger
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