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.

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Year of publication:	2008
Authors:	Goodhart, C.A.E. ; Sunirand, P. ; Tsomocos, D.P.
Institutions:	Finance Research Centre, Oxford University
Subject:	interest rates \| monetary base \| bank capital \| financial stability \| monetary policy

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Extent:	application/pdf
Series:	OFRC Working Papers Series.
Type of publication:	Book / Working Paper
Notes:	2 pages long
Classification:	D58 - Computable and Other Applied General Equilibrium Models ; E44 - Financial Markets and the Macroeconomy ; G28 - Government Policy and Regulation
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005509804