Monetary policy under financial turbulence
The financial crisis that started in 2007 brought the global economy to the brink, and in many respects it is still unfolding, especially in Europe. While a fierce debate continues on how to understand and deal with the crisis, a consensus is emerging with regard to the originating shocks, the mechanisms that amplified those shocks, and official policy responses, especially from central banks. The new consensus assigns a substantially bigger role to financial imperfections and institutions than was previously assumed, to the point that one can safely say that for the next several years, research on macroeconomic policy will be dominated by the interaction between financial frictions, the financial system, and aggregate fluctuations. This volume gathers twelve contributions by distinguished scholars analyzing the causes of the crisis, the role of financial instruments and financial imperfections in its propagation, and the role that policymakers could play through the use of monetary and fiscal policies. These studies expand on theoretical and empirical issues surrounding the new consensus and identify significant lessons for macroeconomic and financial policy.Monetary Policy under Financial Turbulence : An Overview / Luis Felipe Céspedes, Roberto Chang, and Diego Saravia -- The Global Financial Crisis / Franklin Allen and Elena Carletti -- The Great Recession and the Great Depression : Reflections and Lessons / Barry Eichengreen -- Recessions and Financial Disruptions in Emerging Markets : A Bird's Eye View / Stijn Claessens, M. Ayhan Kose, and Marco E. Terrones -- The Credit Channel and Monetary Transmission in Brazil and Chile : A Structured VAR Approach / Luis A.V. Catão and Adrian Pagan -- Revisiting Overborrowing and its Policy Implications / Gianluca Benigno, Huigang Chen, Christopher Otrok, Alessandro Rebucci, and Eric R. Young -- The Financial Accelerator under Learning and the Role of Monetary Policy / Rodrigo Caputo, Juan Pablo Medina and Claudio Soto -- Heterodox Central Banking / Luis Felipe Céspedes, Roberto Chang, and Javier García-Cicco -- Inflation Targeting in Financially Stable Economies : Has it Been Flexible Enough? / Mauricio Calani, Kevin Cowan, and Pablo García S. -- Fiscal Deficits, Debt, and Monetary Policy in a Liquidity Trap / Michael B. Devereux -- Anchors Aweigh : How Fiscal Policy Can Undermine 'Good' Monetary Policy / Eric M. Leeper -- Competition and Stability in Banking / Xavier Vives.