Monetary Policy and Financial Stability: In Search of Trade-offs

Armand Fouejieu and Alexandra Popescu
Additional contact information
Alexandra Popescu: University of Orleans

No 2014.01, Working Papers from International Network for Economic Research - INFER

Abstract: In the aftermath of the 2008 global financial crisis, it has been argued that monetary policy should prevent raising financial risk by responding actively to financial imbalances. This paper investigates the extent to which a central bank’s reaction to financial instability may be incompatible with its other macroeconomic stability objectives. The analytical framework relies on a New Keynesian model with an endogenous financial bubble, where it is assumed that tightening monetary policy can dampen raising financial risk. The paper concludes that a leaning against the wind strategy can generate trade-offs between the traditional inflation-output stability and financial stability objectives.

Pages: 29 pages
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://infer-research.eu/wp-content/uploads/2020/ ... 85e29e1467808763.pdf First version, 2014 (application/pdf)

Related works:
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:inf:wpaper:2014.01

Access Statistics for this paper

More papers in Working Papers from International Network for Economic Research - INFER Contact information at EDIRC.
Bibliographic data for series maintained by Pedro Cerqueira ( this e-mail address is bad, please contact ).