PAUL JOHNSON
  • HOME
  • BLOG
  • Kiviq Software Instructions
  • Kaivik Software Instructions
  • Kaivik Manuscript and instructions
  • Original Vernon Smith Double Auction Experiment Paper
  • Experimental Economics Labs
  • Economic Education Resources
  • Kaivik Manuscript and more instructions

Only Paul Could Go To Changchun

Systemic Risk: A New TradeOff for Monetary Policy?

10/9/2017

 
Here.

This is a theory paper.

We introduce time-varying systemic risk (‡ la He and Krishnamurthy, 2014) in an otherwise standard New-Keynesian model to study whether simple leaning-against-the-wind interest rate rules can reduce systemic risk and improve welfare. We Önd that while Önancial sector leverage contains additional information about the state of the economy that is not captured in ináation and output leaning against Önancial variables can only marginally improve welfare because rules are detrimental in the presence of falling asset prices. An optimal macroprudential policy, similar to a countercyclical capital requirement, can eliminate systemic risk raising welfare by about 1.5%. Also, a surprise monetary policy tightening does not necessarily reduce systemic risk, especially during bad times. Finally, a volatility paradox a la Brunnermeier and Sannikov (2014) arises when monetary policy tries to excessively stabilize output.



From:

Stefan Laséen
Sveriges Riksbank

Andrea Pescatori
Jarkko Turunen
International Monetary Fund


 

Comments are closed.
Proudly powered by Weebly