DP12623 Intermediation markups and monetary policy pass-through

Author(s): Semyon Malamud, Andreas Schrimpf
Publication Date: January 2018
Keyword(s):
JEL(s): E40, E44, E52, G12
Programme Areas: Financial Economics, Monetary Economics and Fluctuations
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12623

We introduce intermediation frictions into the classical monetary model with fully flexible prices. In our model, monetary policy is redistributive because it affects intermediaries' ability to extract rents. The pass-through efficiency of quantitative easing (QE) and tightening (QT) policies depends crucially on the anticipated relationship between future monetary policy and future stock market returns (the "Central Bank Put"). When the Central Bank Put is too weak, balance sheet policies become inefficient. When the Central Bank Put is very strong, however, monetary policy may be destabilizing and lead to greater frequency of market tantrums.