Monetary Policy as Financial Stability Regulation
AbstractThis article develops a model that speaks to the goals and methods of financial stability policies. There are three main points. First, from a normative perspective, the model defines the fundamental market failure to be addressed, namely, that unregulated private money creation can lead to an externality in which intermediaries issue too much short-term debt and leave the system excessively vulnerable to costly financial crises. Second, it shows how in a simple economy where commercial banks are the only lenders, conventional monetary policy tools such as open-market operations can be used to regulate this externality, whereas in more advanced economies it may be helpful to supplement monetary policy with other measures. Third, from a positive perspective, the model provides an account of how monetary policy can influence bank lending and real activity, even in a world where prices adjust frictionlessly and there are other transactions media besides bank-created money that are outside the control of the central bank. Copyright 2012, Oxford University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Oxford University Press in its journal The Quarterly Journal of Economics.
Volume (Year): 127 (2012)
Issue (Month): 1 ()
Contact details of provider:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Brian Begalle & Antoine Martin & James McAndrews & Susan McLaughlin, 2013. "The risk of fire sales in the tri-party repo market," Staff Reports 616, Federal Reserve Bank of New York.
- Philip Lane & Peter McQuade, 2009.
"Domestic Credit Growth and International Capital Flows,"
The Institute for International Integration Studies Discussion Paper Series
- Lane, Philip R. & McQuade, Peter, 2013. "Domestic credit growth and international capital flows," Working Paper Series 1566, European Central Bank.
- Guillermo A. Calvo, 2012. "The Price Theory of Money, Prospero's Liquidity Trap, and Sudden Stop: Back to Basics and Back," NBER Working Papers 18285, National Bureau of Economic Research, Inc.
- Tobias Adrian & Daniel Covitz & Nellie J. Liang, 2013.
"Financial stability monitoring,"
601, Federal Reserve Bank of New York.
- Hanson, Samuel G. & Sunderam, Adi, 2013. "Are there too many safe securities? Securitization and the incentives for information production," Journal of Financial Economics, Elsevier, vol. 108(3), pages 565-584.
- Giovanni Dell'Ariccia & Luc Laeven & Gustavo Suarez, 2013. "Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States," IMF Working Papers 13/143, International Monetary Fund.
- Thomas Philippon, 2012. "Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation," NBER Working Papers 18077, National Bureau of Economic Research, Inc.
- Pan, Huiran & Wang, Chun, 2013. "House prices, bank instability, and economic growth: Evidence from the threshold model," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1720-1732.
- Julio J. Rotemberg, 2013. "Shifts in US Federal Reserve Goals and Tactics for Monetary Policy: A Role for Penitence?," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 65-86, Fall.
- Gonzalo Caballero, 2013. "Effects of Fiscal and Monetary Policy in the Great Recession," Economies, MDPI, Open Access Journal, vol. 1(2), pages 15-18, September.
- repec:iis:dispap:iiisdp438 is not listed on IDEAS
- Cécile Bastidon, 2013. "Un modèle théorique d'intermédiation : transmission et gestion des chocs," Post-Print hal-00806524, HAL.
- Bank for International Settlements, 2013. "Risk-free assets in financial markets," BIS Papers chapters, in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, volume 72, pages 101-106 Bank for International Settlements.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.