A Step-by-Step Overview of Gertler's and Karadi's "Model of Unconventional Monetary Policy"

Research Paper (undergraduate) , 2017 , 39 Pages , Grade: 8.5

Economics - Finance

Our goal in this paper is to replicate the model of Gertler and Karadi (2011) and to give an elaborate overview of the way in which this model works. Instead of showing the final results, we provide a step-by-step overview of all the necessary calculations and derivations that lead to the ultimate model. Our last objective is to explain the relevance and the impact that the paper of Gertler and Karadi had. First, we describe the model with separate sections for the different agents that play a role in the model: households, financial intermediaries, intermediate goods firms, capital producing firms, retail firms, and the government (including the central bank). Secondly, we perform a Taylor approximation and import out model into Matlab. Thirdly, the model is analysed and the results are given. Fourthly, the impact of the Gertler and Karadi paper is discussed.

Contents

1 Introduction

2 Model Description
2.1 Households
2.2 Financial Intermediaries
2.3 Credit Policy
2.4 Intermediate goods firms
2.5 Capital Producing firms
2.6 Retail Firms
2.7 Resource constraint and government policy

3 Log-linearization and the steady state relations
3.1 The Equilibrium
3.1.1 Equilibrium equations
3.2 Approximation

4 Model Analysis
4.1 The parameters
4.2 Model analysis

5 Discussion
5.1 Impact of the Gertler and Karadi (2011) paper
5.2 Criticism

6 Conclusion

7 Appendix: Taylor Approximations
7.1 Euler - optimal savings consumption . .
7.2 Stochastic Discount Rate
7.3 Arbitrage
7.4 Labour supply
7.5 Optimal leverage ratio
7.6 Growth rate of bank’s net wealth
7.7 Optimal utilization rate
7.8 Production Function
7.9 Net capital
7.10 Capital Accumulation
7.11 Fisher Relation
7.12 Effective Capital
7.13 Wages

• College: Maastricht University
• Course: Macroeconomics I
• Grade: 8.5
• Authors: Colin Tissen (Author), Wiktor Owczarz (Author)
• Publication Year: 2017
• Pages: 39
• Catalog Number: V376747
• ISBN (eBook): 9783668540538
• ISBN (Book): 9783668540545
• Language: English
• Tags: gertler, karadi