Central Bank Balance Sheet Policies Without Rational Expectations

• 成果类型: Article
• 署名作者: Iovino, Luigi; Sergeyev, Dmitriy
• 署名单位: Bocconi University
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdad010
• 发表日期: 2023
• 页码: 3119-3152
• 关键词: FX interventions; sticky prices; exchange-rate; INFORMATION; liquidity; models; risks; US

摘要

We study the effects of central bank balance sheet policies-namely, quantitative easing and foreign exchange interventions-in a model where people form expectations through an iterative level-k thinking process. We emphasize two main theoretical results. First, under a broad set of conditions, central bank interventions are effective under level-k thinking, while they are neutral in the rational expectations equilibrium. Second, when preferences exhibit constant relative risk aversion, asset purchases increase aggregate output if they target assets with pro-cyclical returns but reduce it if asset returns are counter-cyclical. Finally, we empirically show that forecast errors about future asset prices are predictable by balance sheet interventions, a property that differentiates our channel from popular alternatives, such as portfolio-balance and signaling channels.