Monetary Policy And The Cyclicality Of Risk

Download or read book Monetary Policy and the Cyclicality of Risk written by Christopher J. Gust and published by DIANE Publishing. This book was released on 2010 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: The authors use a DSGE model that generates endogenous movements in risk premia to examine the positive and normative implications of alternative monetary policy rules. Variation in risk arises because households face fixed costs of transferring cash across financial accounts, implying that some households rebalance their portfolios infrequently. The model can account for the mean returns on equity and the risk-free rate, and in line with empirical evidence generates a decline in the equity premium following an unanticipated easing of monetary policy. Countercyclical monetary policy generates higher average welfare than constant money growth or zero inflation policies. Charts and tables. This is a print on demand report.