The Optimal Monetary Instrument for Prudential Purposes

C.A.E. Goodhart, P. Sunirand and Dimitrios Tsomocos

OFRC Working Papers Series from Oxford Financial Research Centre

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.

Keywords: interest rates; monetary base; bank capital; financial stability; monetary policy (search for similar items in EconPapers)
JEL-codes: D58 E44 G28 (search for similar items in EconPapers)
Pages: 28
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pke
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Citations: View citations in EconPapers (3)

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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:sbs:wpsefe:2008fe26

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