The Optimal Monetary Instrument for Prudential Purposes
The purpose of this paper is to assess the choice between adopting a monetary base or an interest rate setting instrument to maintain financial stability. Our results suggest that the interest rate instrument is preferable, since during times of a panic or financial crisis the Central Bank automatically satisfies the increased demand for money. Thus, it prevents sharp losses in asset values and enhanced asset volatility.
Year of publication: |
2008-08
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Authors: | Goodhart, Charles ; Tsomocos, Dimitrios ; Sunirand, Pojanart |
Institutions: | Financial Markets Group |
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