Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies

Julio Carrillo, Enrique G. Mendoza, Victoria Nuguer and Jessica Roldán-Peña

American Economic Journal: Macroeconomics, 2021, vol. 13, issue 3, 37-73

Abstract: Violations of Tinbergen's rule and strategic interaction undermine stabilization policies in a New Keynesian model with the Bernanke-Gertler accelerator. Welfare costs of risk shocks are large because of efficiency losses and income effects of costly monitoring, but they are much larger under a simple Taylor rule (STR) or a Taylor rule augmented with credit spreads (ATR) than with a Taylor rule and a separate financial rule targeting spreads. ATR and STR are tight money-tight credit regimes responding too much (little) to inflation (spreads). The Nash equilibrium of monetary and financial policies is also tight money-tight credit but it dominates ATR and STR.

JEL-codes: E12 E31 E43 E44 E52 E63 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies (2019)
Working Paper: Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies (2019)
Working Paper: Tight money - tight credit: coordination failure in the conduct of monetary and financial policies (2018)
Working Paper: Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies (2017)
Working Paper: Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies (2017)
Working Paper: Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies (2017)
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DOI: 10.1257/mac.20180321

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