Does easing monetary policy increase financial instability? /

Does easing monetary policy increase financial instability? /

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Bibliographic Details
Author / Creator:	Cesa-Bianchi, Ambrogio, author.
Imprint:	[Washington, D.C.] : International Monetary Fund, Research Department, 2015.
Description:	1 online resource (47 pages).
Language:	English
Series:	IMF working paper ; WP/15/139 IMF working paper ; WP/15/139.
Subject:	Monetary policy -- United States -- Econometric models. Bank loans -- United States -- Econometric models. Global Financial Crisis, 2008-2009. Bank loans -- Econometric models. Monetary policy -- Econometric models. United States. Electronic books.
Format:	E-Resource Book
URL for this record:	http://pi.lib.uchicago.edu/1001/cat/bib/12504510

Hidden Bibliographic Details
Other authors / contributors:	Rebucci, Alessandro, author. International Monetary Fund. Research Department.
ISBN:	1513588494 9781513588490 9781513588490
ISSN:	1018-5941
Notes:	"June 2015."
Summary:	"This paper develops a model featuring both a macroeconomic and a financial friction that speaks to the interaction between monetary and macro-prudential policies. There are two main results. First, real interest rate rigidities in a monopolistic banking system have an asymmetric impact on financial stability: they increase the probability of a financial crisis (relative to the case of flexible interest rate) in response to contractionary shocks to the economy, while they act as automatic macro-prudential stabilizers in response to expansionary shocks. Second, when the interest rate is the only available policy instrument, a monetary authority subject to the same constraints as private agents cannot always achieve a (constrained) efficient allocation and faces a trade-off between macroeconomic and financial stability in response to contractionary shocks. An implication of our analysis is that the weak link in the U.S. policy framework in the run up to the Global Recession was not excessively lax monetary policy after 2002, but rather the absence of an effective regulatory framework aimed at preserving financial stability."--Abstract.
Other form:	Print Version: 9781513588490
Standard no.:	10.5089/9781513588490.001

Description
Summary:	This paper develops a model featuring both a macroeconomic and a financial friction that speaks to the interaction between monetary and macro-prudential policies. There are two main results. First, real interest rate rigidities in a monopolistic banking system have an asymmetric impact on financial stability: they increase the probability of a financial crisis (relative to the case of flexible interest rate) in response to contractionary shocks to the economy, while they act as automatic macro-prudential stabilizers in response to expansionary shocks. Second, when the interest rate is the only available policy instrument, a monetary authority subject to the same constraints as private agents cannot always achieve a (constrained) efficient allocation and faces a trade-off between macroeconomic and financial stability in response to contractionary shocks. An implication of our analysis is that the weak link in the U.S. policy framework in the run up to the Global Recession was not excessively lax monetary policy after 2002, but rather the absence of an effective regulatory framework aimed at preserving financial stability.
Item Description:	"June 2015."
Physical Description:	1 online resource (47 pages).
ISBN:	1513588494 9781513588490
ISSN:	1018-5941