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Macroprudential policy: promise and challenges
The developments that led to the 2008 global financial crisis raised a new awareness amongst central banks and financial regulators in advanced economies about the need to approach financial regulation and surveillance from a macroeconomic (i.e. systemic) and prudential (i.e. pre-emptive) perspective. ...
Interest rate policies banking and the macroeconomy
The debate over the effectiveness of monetary policy often centers around the benefits of low interest rates as a stimulus for the real economy. The idea is that low interest rates encourage spending either in the form of consumption or investment and this promotes employment and production. The ...
Monetary policy in Chile: a black box?
During the 1990s the Chilean economy gradually cut its inflation rate from figures in the thirties to 4.7 percent in 1998. Central bank authorities have declared that the main objective of monetary policy is to reduce inflation to levels comparableto those in industrial countries. The desgnated ...
The financial accelerator under learning and the role of monetary policy
The financial crisis that unraveled after the Lehman Brothers collapse affected in different degrees almost all countries around the world independently of the direct exposure of their financial institutions to toxic assets. Most countries saw a sharp drop in demand together with sudden increases in ...
Monetary policy transmission in emerging markets: an application to Chile
A critical question for emerging-market policymakers is how to adjust to monetary policy changes in the center. A core tenet of modern macroeconomic theory is that countries should let their exchange rate float when financial conditions abroad change. This allows the nominal and real exchange rates ...
Optimal monetary policy under uncertainty in DSGE models: a markov jump-linear-quadratic approach
Our previous work develops methods to study optimal policy in Markov jump-linear-quadratic (MJLQ) models with forward-looking variables: models with conditionally linear dynamics and conditionally quadratic preferences, where the matrices in both preferences and dynamics are random (Svensson and ...
Credibility and inflation targeting in Chile
After a long history of high and volatile inflation, the Central Bank of Chile began implementing its monetary policy in the early 1990s by announcing yearly targets for inflation. This new framework was the first step toward a full-fledged inflation-targeting setup, although the Central Bank continued ...
Inflation dynamics in a small open economy model under inflation targeting: some evidence from Chile
Following the influential work of Christiano, Eichenbaum, and Evans (2005) and Smets and Wouters (2003), many central banks are building and estimating dynamic stochastic general equilibrium (DSGE) models with nominal rigidities and are using them for policy analysis. This new generation of sticky ...
Fiscal deficits debt and monetary policy in a liquidity trap
The dramatic policy response to the 2008-09 global economic crisis from many countries has revived some old debates about the use of fiscal and monetary policy in fighting recessions. The central dilemma for policy-makers in Japan North America and Europe has been to try to counter a large recession ...
Optimal monetary policy rules when the current account matters
Policymarkers and the academic community have reached an increasing consensus during the last two decades: the primary objective of monetary policy should be to control inflation (see, for example, King, 1999). A less settled issue is the appropriate role of the central bank regarding other, secondary ...