Collaterals and (in)stability of monetary policy

Mardi | 2017-12-12
Salle des thèses 16h – 17h20

Daria ONORI – Antoine LE RICHE

We consider an infinite horizon monetary economy and study the effects of collaterals on credit market on the steady-state features, on the welfare properties and on the business cycle. Capital plays the role of collateral: the share of consumption that must be paid in cash depends negatively on the stock of capital held by the households. The monetary policy is conducted by the Central Bank following a feedback Taylor rule. We show the coexistence of a liquidity trap and an interior Leeper equilibrium. We find that the Leeper steady state level of capital is always larger than that of the liquidity trap and that there may exist multiple steady state levels for capital and for consumption. In addition, under some mild conditions, the Leeper steady state consumption level can be larger or smaller than that of the liquidity trap. However the liquidity trap equilibrium always Pareto dominates the interior one. We show that when the constraint is exogenous or not fully internalized, the Leeper equilibrium is always determinate, meanwhile when it is internalized the steady state may be locally indeterminate.