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Credit spread and monetary policy

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  • Teranishi, Yuki

Abstract

We show that the spread-adjusted Taylor rule including a response to the credit spread is a theoretically optimal monetary policy under heterogeneous loan contracts. However, the optimal response to the credit spread is ambiguous, given the financial market structure.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 114 (2012)
Issue (Month): 1 ()
Pages: 26-28

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Handle: RePEc:eee:ecolet:v:114:y:2012:i:1:p:26-28

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Credit spread; Optimal monetary policy; Heterogeneous loan contracts;

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References

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  1. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  2. Nao Sudo & Yuki Teranishi, 2008. "Optimal Monetary Policy under Imperfect Financial Integration," IMES Discussion Paper Series 08-E-25, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Ravenna, Federico & Walsh, Carl E., 2006. "Optimal monetary policy with the cost channel," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 199-216, March.
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Cited by:
  1. Jaromír Baxa & Roman Horváth & Borek Vasícek, 2011. "Monetary Policy Rules and Financial Stress: Does Financial Instability Matter for Monetary," Working Papers wpdea1101, Department of Applied Economics at Universitat Autonoma of Barcelona.
  2. Ito, Takatoshi, 2009. "Fire, flood, and lifeboats: policy responses to the global crisis of 2007-09," Proceedings, Federal Reserve Bank of San Francisco, issue Oct, pages 207-249.
  3. Albulescu, Claudiu Tiberiu, 2013. "Financial Stability and Monetary Policy: A Reduced-Form Model for the EURO Area," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 62-81, March.
  4. Kühl, Michael, 2014. "The financial accelerator and market-based debt instruments: A role for maturities?," Discussion Papers 08/2014, Deutsche Bundesbank, Research Centre.
  5. Christopher Martin & Costas Milas, 2010. "Financial Stability and Monetary Policy," Working Paper Series 12_10, The Rimini Centre for Economic Analysis.
  6. Martin, Christopher & Milas, Costas, 2013. "Financial crises and monetary policy: Evidence from the UK," Journal of Financial Stability, Elsevier, vol. 9(4), pages 654-661.
  7. Nao Sudo & Yuki Teranishi, 2008. "Optimal Monetary Policy under Imperfect Financial Integration," IMES Discussion Paper Series 08-E-25, Institute for Monetary and Economic Studies, Bank of Japan.

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