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Abstract(s)
This dissertation presents the numerical solution of the model developed in Correia,
I., F. De Fiore, P. Teles, O. Tristani (2012). In this framework, financial
intermediation takes place with private intermediaries facing endogenously determined
balance sheet constraints. I compute the approximate solution of the
problem of a Ramsey planner in response to several exogenous shocks. The
response to these shocks under optimal policy isolates the financial sector from
the rest of the economy so that the financing cost of firms does not increase
and allocations are not distorted. Furthermore, I show that for a given price
level on impact there is always a nominal interest rate path that satisfies the
financial constraint and replicates the first best allocations. In this framework,
indeterminacy in price level leads to multiple solutions for the optimal nominal
interest rate policy.
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Keywords
Financial intermediation Financial frictions Credit costs Optimal