Publication detail

Should Monetary Policy Lean against the Wind? An Evidence from a DSGE Model with Occasionally Binding Constraint

Author(s): Mgr. Jan Žáček ,
Type: IES Working Papers
Year: 2018
Number: 37
ISSN / ISBN:
Published in: IES Working Papers
Publishing place: Prague
Keywords: asset prices, DSGE, leaning-against-the-wind, monetary policy, non-linearities, Taylor Rule
JEL codes: E30, E44, E50
Suggested Citation: Zacek J. (2018): " Should Monetary Policy Lean against the Wind? An Evidence from a DSGE Model with Occasionally Binding Constraint ". IES Working Papers 37/2018, IES FSV, Charles University.
Abstract: This research paper studies the performance of the Taylor-type rules augmented with output and asset prices, and compares their performance in a model with an eternally and occasionally binding constraint. The rules are examined under the optimisation of a central bank's loss function and a welfare maximisation of the economic agents. The analysis delivers the following results. The model with occasionally binding constraint has more favourable properties regarding the hump-shaped and asymmetric impulse responses compared to the eternally binding constraint model. The best rule regarding the lowest value of the central banks' loss function proves to be the rule augmented with asset prices. The optimal reactions are, however, shock- and model-dependent. Moreover, a chosen specification of the loss function plays a significant role. The welfare maximisation reveals that reacting to asset prices might not be welfare-improving for both types of economic agents – households and entrepreneurs. This result is, however, model-dependent.
Downloadable: wp_2018_37_zacek

Partners

Deloitte
McKinsey & Company
Moneta Money Bank

Sponsors

CRIF
ČSOB