Monetary policy, financial stability, and the distribution of risk
AbstractIn an economy in which debt obligations are fixed in nominal terms, but there are otherwise no nominal rigidities, a monetary policy that targets inflation inefficiently concentrates risk, tending to increase the financial distress that accompanies adverse real shocks. Nominal-income targeting spreads risk more evenly across borrowers and lenders, reproducing the equilibrium that one would observe if there were perfect capital markets. Empirically, inflation surprises have no independent influence on measures of financial strain once one controls for shocks to nominal GDP.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1111.
Date of creation: 2011
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-05 (All new papers)
- NEP-BAN-2011-12-05 (Banking)
- NEP-CBA-2011-12-05 (Central Banking)
- NEP-CFN-2011-12-05 (Corporate Finance)
- NEP-MAC-2011-12-05 (Macroeconomics)
- NEP-MON-2011-12-05 (Monetary Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- "NGDP Targeting: Some Questions"
by Mark Thoma in Economist's View on 2012-04-27 15:14:19
- NGDP Targeting: Some Questions
by David Andolfatto in MacroMania on 2012-04-27 21:35:00
- "NGDP Targeting: Some Questions"
by Economists View in FavStocks on 2012-04-28 07:25:22
- Eagle, David M. & Christensen, Lars, 2012. "Two Equations on the Pareto-Efficient Sharing of Real GDP Risk," MPRA Paper 41051, University Library of Munich, Germany.
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