Analysis of Monetary Policy and Financial Stability: A New Paradigm

Goodhart, Charles; Osorio, Carolina; Tsomocos, Dimitrios P.

doi:10.2139/ssrn.1532675

Cited by 13 publications

(2 citation statements)

References 16 publications

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“…However, banks are usually a passive friction in this literature, with the exception of the papers cited in the text, and Cociuba, Shukayev and Ueberfeldt (2012), who numerically analyze monetary transmission on banks'incentives to "search for yield", but do not focus on the optimality of "leaning against the wind". See also Goodhart, Osorio and Tsomocos (2009) who have bank default in their model and their simulations show how it is a¤ected by the policy rate. Their model does not have an optimizing central bank, however.…”

Section: All Of the Above Literature Focuses On How Monetary Policy A...mentioning

confidence: 99%

Leaning Against the Wind and the Timing of Monetary Policy

Agur

Demertzis

2013

IMF Working Papers

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If monetary policy is to aim also at financial stability, how would it change? To analyze this question, this paper develops a general-form framework. Financial stability objectives are shown to make monetary policy more aggressive: in reaction to negative shocks, cuts are deeper but shorter-lived than otherwise. By keeping cuts brief, monetary policy tightens as soon as bank risk appetite heats up. Within this shorter time span, cuts must then be deeper than otherwise to also achieve standard objectives. Finally, we analyze how robust this result is to the presence of a bank regulatory tool, and provide a parameterized example.

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Section: All Of the Above Literature Focuses On How Monetary Policy A...mentioning

confidence: 99%

Leaning Against the Wind and the Timing of Monetary Policy

Agur

Demertzis

2013

IMF Working Papers

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“…Another reason why monetary policy may face less resistance compared to macro-prudential policy is given byBorio (2011): "…There is at least some constituency that dislikes inflation, but none that dislikes the inebriating feeling of getting richer. "4 The joint conduct and interaction of monetary and prudential policies has been the subject of much recent research (see, for example,Angeloni and Faia (2009),Goodhart, Osorio and Tsomocos (2009), IMF (2012),Wadhwani (2010)). While broadly these policies should complement each other, macro-prudential policy needs to concentrate on preserving financial stability as it is relatively less suited for managing aggregate demand.…”

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confidence: 99%

Rules, Discretion, and Macro-Prudential Policy

Agur¹,

Sharma

2013

SSRN Journal

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Are household consumption decisions affected by past due unsecured debt? Theory and evidence

Bechlioulis

Brissimis

2020

Int. J Fin Econ

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We study delinquent and non‐performing loans in consumer credit markets and their implications for consumer behaviour. By introducing endogenously non‐payment of debt in the inter‐temporal optimization problem of a representative borrowing household, we derive analytically an augmented consumption Euler equation featuring a risk factor in terms of expected non‐performing debt and delinquent debt. We find that the presence of the risk factor differentiates the estimated values of the preference parameters and enhances the model's structure in comparison to the benchmark representative agent model with full debt repayment, which seems to be an incomplete description of consumer behaviour.

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Analysis of Monetary Policy and Financial Stability: A New Paradigm

Cited by 13 publications

References 16 publications

Leaning Against the Wind and the Timing of Monetary Policy

Leaning Against the Wind and the Timing of Monetary Policy

Rules, Discretion, and Macro-Prudential Policy

Are household consumption decisions affected by past due unsecured debt? Theory and evidence

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