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Financial stability monetary policy and Central Banking: an overview
The financial developments of the last decade had a large impact on the management of risk providing more diversified portfolios to investors. Based on these complex financial contracts investors were able to shift the investment possibilities frontier outward however that movement generated intricate ...
Monetary policy, interest rate rules, and inflation targeting: some basic equivalences
Monetary policy in small open economies is typically cast as a choice between an exchange rate anchor (fixed or predetermined exchange rates) and a money anchor (floating exchange rates). Under such regimes, the growth rate of the nominal anchor is set according to the desired long-run inflation rate. ...
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 ...
A sticky-information general equilibrium model for policy analysis
Following on Keynes’s desire that economists be as useful as dentists, Lucas (1980) argues that this would amount to the following: “Our task, as I see it, is to write a FORTRAN program that will accept specific economic policy rules as ‘input’ and will generate as ‘output’ statistics describing the ...
Measuring the effects of unconventional monetary policy on asset prices
On 16 December 2008 the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) lowered the federal funds rate—its traditional monetary policy instrument—to essentially zero in response to the most severe U.S. financial crisis since the Great Depression. Because U.S. currency carries an interest ...
Floats pegs and the transmission of fiscal policy
One of the most popular pieces of wisdom in economic policy is the idea that fiscal policy is more effective in a fixed exchange rate regime or a currency union than in a flexible exchange rate regime. In this paper we revisit the theoretical foundations of the conventional wisdom on the relative ...
Monetary policy: rules and transmission mechanisms
Monetary policy must consider the bidirectional relationship between the economy and its central bank. It should therefore address two essential questions: first, how changes in the economy induce a reaction by the central bank, and second, how these policy changes are in turn transmitted to the ...
Monetary policy and financial stability: transmission mechanisms and policy implications
The global financial crisis that broke out 10 years ago uncovered the buildup of risks during a period of price and output stability. It challenged the previous consensus that preserving price stability was the optimal way to ensure financial stability, and led to a surge of interest in the multiple ...
Incorporating financial sector risk into monetary policy models: application to Chile
This article analyzes whether market-based financial stability indicators (FSIs) should be included in monetary policy models and, if so, how. Since the economy and interest rates affect financial sector credit risk, and the financial sector affects the economy, this article builds a model of financial ...
Propagation of inflationary shocks in Chile
Cuando un shock golpea a un determinado precio, puede extenderse a otros precios y por tanto mover la inflación total en más que el efecto inicial. Este fenómeno se conoce como propagación de shock inflacionario y es el tema del presente artículo. Se argumenta que los modelos VAR bidimensionales que ...