Monetary, financial and fiscal fragility in 2020s

Financial Fragility, Bubbles and Monetary Policy

The paper models the links between financial fragility, asset markets and monetary policy. It is shown that central bank’s concern about the cost of financial disruption may generate an asymmetric response, thus contributing to the creation of an asset price bubble. In an economy with a highly leveraged financial structure, the central bank has an incentive to prevent a “run” on financial inter...

www.econstor.eu Fiscal, Monetary, and Financial Interactions in Dynamic General Equilibrium

Fiscal, Monetary, and Financial Interactions in Dynamic General Equilibrium

This paper proposes a model that links households and firms, as usual, by markets for factors and goods and, additionally, by a banking sector that channels households’ funds to firms and eliminates idiosyncratic risk. In equilibrium, agency costs and tax benefits of corporate debt are equalizing each other, which renders an institutionally based explanation of financial structure. Adjustment o...

Fiscal theory, and fiscal and monetary policy in the financial crisis

The fiscal theory offers an attractive perspective. First, with interest rates near zero, money and government bonds are nearly perfect substitutes, especially for the banks and financial institutions at the center of economic events. Conventional monetary policy analysis aimed at the split of government debt holdings between “monetary” and “debt” assets seems rather irrelevant; the big events ...

Monetary Policy, Fiscal Policy, and the Efficiency of Our Financial System: Lessons from the Financial Crisis

I am enormously grateful to Rich Clarida and Jeff Fuhrer for their kind and thoughtful initiative, first in conceiving the idea for this conference and then in organizing it so successfully; to Eric Rosengren and the Federal Reserve Bank of Boston for the marvelous hospitality we have all enjoyed these past two days; to the many fine economists who devoted their valuable time to writing papers ...