Title: Financial crises and optimal unconventional policies in international business cycles
Authors: Shifu Jiang - University of Surrey (United Kingdom) [presenting]
Abstract: The Ramsey problem is studied for three unconventional policies in a two-country model with occasionally binding financial constraints. Lending to banks is the most efficient policy because of a smaller crowding out effect on private funds. If financed by government debt or a lump-sum tax, the optimal policy begins with a strong response and exits slowly. If financed by a labour tax, the unconventional policy is only used passively. A lack of international policy cooperation does not necessarily reduce welfare. A simple feedback rule that responds to gaps in asset prices mimics the optimal policy very well.