Monetary policy and financial stability in the long run: A simple game-theoretic approach
| Autor: | Jin Cao, Lorán Chollete |
|---|---|
| Přispěvatelé: | University of St Andrews. School of Economics and Finance |
| Rok vydání: | 2017 |
| Předmět: |
Inflation
Strategic interaction HG Finance Insolvency Financial stability Stability effect media_common.quotation_subject Correlation-indexed security HB NDAS Stability (learning theory) Monetary economics Discipline effect HG 0502 economics and business Economics 050207 economics 050205 econometrics media_common Simple (philosophy) HB Economic Theory 05 social sciences Monetary policy Term (time) Central banking General Economics Econometrics and Finance Welfare Finance |
| Zdroj: | Journal of Financial Stability. 28:125-142 |
| ISSN: | 1572-3089 |
| DOI: | 10.1016/j.jfs.2016.12.002 |
| Popis: | Chollete acknowledges support from Finansmarkedsfondet, of the Research Council of Norway. Many theoretical central bank models use short horizons and focus on a single tradeoff. However, in reality, central banks play complex, long-horizon games and face more than one tradeoff. We account for these strategic interactions in a simple infinite-horizon game with a novel tradeoff: tighter monetary policy deters financial imbalances, but looser monetary policy reduces the likelihood of insolvency. We term these factors discipline and stability effects, respectively. The central bank’s welfare decreases with dependence between real and financial shocks, so it may reduce costs with correlation-indexed securities. An independent central bank cannot in general attain both low inflation and financial stability. Postprint |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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