Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/207744 
Year of Publication: 
2019
Series/Report no.: 
NBB Working Paper No. 364
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
I develop a New Keynesian model with preferences over safe assets (POSA) calibrated using evidence on the wedge between household discount rates and market interest rates. POSA attenuate intertemporal consumption smoothing and thus the household's responsiveness to future interest rates, the more so the more distant in time they are located, and imply a consumption wealth effect. Therefore, POSA substantially lower the macroeconomic effect of forward guidance policies. By contrast, POSA does not substantially change the effect of the standard shocks of Smets/Wouters (2007) type DSGE models. The results carry over to a model with Iacoviello (2005,2014)-type collateral constraints. Such constraints in themselves tend to strongly amplify the effect of forward guidance.
Subjects: 
Forward guidance puzzle
preferences over safe assets
monetary policy
collateral constraints
JEL: 
E52
E62
E32
Document Type: 
Working Paper

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