The Optimal Monetary Instrument for Prudential Purposes

Charles Goodhart (), Dimitrios Tsomocos and Pojanart Sunirand

FMG Discussion Papers from Financial Markets Group

Abstract: The purpose of this paper is to assess the choice between adopting a monetary base or an interest rate setting instrument to maintain financial stability. Our results suggest that the interest rate instrument is preferable, since during times of a panic or financial crisis the Central Bank automatically satisfies the increased demand for money. Thus, it prevents sharp losses in asset values and enhanced asset volatility.

Date: 2008-08
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pke
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http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp617.pdf (application/pdf)

Related works:
Journal Article: The optimal monetary instrument for prudential purposes (2011)
Working Paper: The Optimal Monetary Instrument for Prudential Purposes (2008)
Working Paper: The Optimal Monetary Instrument for Prudential Purposes (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:fmg:fmgdps:dp617

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