Presenter: Markus K. Brunnermeier
Affiliation: Princeton University, Department of Economics and Bendheim Center for Finance.
Paper: Optimal (Un)Conventional Monetary Policy.
Date: March 17, 2026.
Time: 15:00 Israel Time.
Abstract: We study the optimal joint interest rate and central bank balance sheet policies in a macro model with financial sector, sticky prices, aggregate and idiosyncratic risk. The optimal policy mix ensures an efficient path of aggregate consumption, as well as its efficient distribution across agents. With a fixed balance sheet composition, interest rate policy alone can close the output gap and implement the efficient path of aggregate consumption. It can also ensure its (near) efficient distribution, but only in a small vicinity around the stochastic steady state. Distributional efficiency away from the steady state requires active balance sheet management. The role of balance sheet policy is preparatory – it ensures that the effects of future shocks are distributed efficiently across agents, given the intended interest rate responses to those shocks.
Coauthors: Andrey Alexandrov (University of Rome Tor Vergata).