Productivity Fluctuation, Bank Lending and Nominal Interventions on Product Markets
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Series
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Speaker(s)Tianxi Wang (University of Essex, United Kingdom)
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FieldMacroeconomics
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LocationTinbergen Institute Amsterdam, room 1.01
Amsterdam -
Date and time
October 20, 2022
16:00 - 17:15
Abstract: Typically, central banks intervene with asset markets. This paper shows that if the productivity fluctuation is sufficiently large, the following nominal intervention on a product market is non-neutral: Whenever the negative productivity shock hits, the central bank produces fiat money to buy the product; and later retires money via product-money exchanges. The intervention increases the nominal price fluctuation and the bad-state profit margin of bank lending. The two have opposite effects for efficiency. The net effect depends on how the intervention is wound down. Furthermore, banks' money creation reduces lending rates by leveraging up the return to holding fiat money. (single authored paper).