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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 ...
Inflation targeting under imperfect knowledge
A central tenet of inflation targeting is that establishing and maintaining well-anchored inflation expectations are essential. Well-anchored expectations enable inflation-targeting central banks to achieve stable output and employment in the short run, while ensuring price stability in the long run. ...
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 ...
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 ...
Toward an operational framework for financial stability: 'fuzzy' measurement and its consequences
Over the last decade or so, addressing financial instability ¿has risen to the top of national and international policy agendas. Policymakers in general and central banks in particular have been allocating increasing resources to the monitoring of potential threats to financial stability and the ...
Quantitative easing and financial stability
Since the global financial crisis of 2008–09 many of the leading central banks have dramatically increased the size of their balance sheets and have shifted the composition of the assets that they hold toward larger shares of longer-term securities (as well as toward assets that are riskier in other ...
International aspects of the zero lower bound constraint
Large negative aggregate demand shocks can drive down an economy’s equilibrium real interest rate and if the central bank is committed to stabilizing inflation monetary policy may be hampered by the zero lower bound on nominal interest rates –the economy may be in a 'liquidity trap.' The policy dilemma ...
Funding liquidity risk in a quantitative model of systemic stability
The global financial crisis of 2007–09 has illustrated the importance of including funding liquidity feedbacks in any model of systemic risk. This paper illustrates how we have incorporated such channels into a risk assessment model for systemic institutions (RAMSI) and it outlines the Bank of England’s ...
Macroeconomic and monetary policies from the eductive viewpoint
The quality of the coordination of expectations, a key issue for monetary policy, obtains from different, but interrelated, channels: both the credibility of the central bank intervention and the ability of decentralized agents to coordinate on a dynamical equilibrium matter. For both purposes, it is ...
Inflation targeting versus price-path targeting: looking for improvements
The world’s central banks have undergone dramatic changes in the past fifteen years. Increases in independence and transparency have been coupled with a shift in focus. Price stability is now the paramount objective for the vast majority of modern central bankers. Combined, these changes in central ...