EconPapers    
Economics at your fingertips  
 

Monetary Policy Rules with Financial Instability

Sofia Bauducco, Ales Bulir () and Martin Cihak ()

Working Papers from Czech National Bank, Research Department

Abstract: To provide a rigorous analysis of monetary policy in the face of financial instability, we extend the standard dynamic stochastic general equilibrium model to include a financial system. Our simulations suggest that if financial instability affects output and inflation with a lag, and if the central bank has privileged information about credit risk, monetary policy responding instantly to increased credit risk can trade off more output and inflation instability today for a faster return to the trend than a policy that follows the simple Taylor rule. This augmented rule leads in some parameterizations to improved outcomes in terms of long-term welfare, however, the welfare impacts of such a rule appear to be negligible.

Keywords: DSGE models; financial instability; monetary policy rule. (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-dge, nep-mac and nep-mon
Date: 2008-12
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.cnb.cz/en/research/research_publication ... ad/cnbwp_2008_08.pdf

Related works:
Journal Article: Monetary Policy Rules with Financial Instability (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2008/8

Access Statistics for this paper

More papers in Working Papers from Czech National Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Jan Babecky ().

 
Page updated 2018-05-11
Handle: RePEc:cnb:wpaper:2008/8