If monetary policy is to aim also at financial stability, how would it change? To analyze this question, this paper develops a general-form framework. Financial stability objectives are shown to make monetary policy more aggressive: in reaction to negative shocks, cuts are deeper but...

This paper contributes to the current debate on what role financial stability considerations should play in monetary policy decision and how best to integrate macro-prudential and monetary policy frameworks. The paper broadly supports the view that monetary policy easing induces greater...

We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante...

This paper surveys the foreign exchange markets, money and secondary government security markets, and stock exchanges in 107 smaller economy countries. The underdevelopment of these markets impedes risk transfer, monetary policy, corporate financing, and the capacity to absorb capital inflows....

The recent expansion of the balance sheet of the consolidated Federal Reserve Banks (FRB) is analyzed in an historical context. The analysis reveals that the nature of Fed involvement in U.S. financial markets has changed dramatically and its expansion is several orders of magnitude beyond what...

International policy efforts to strengthen financial systems have highlighted the role of liquidity. This paper explores a framework to assess arrangements for market liquidity and lays out elements of systemic liquidity policy. Robust arrangements for liquidity provide confidence to market...

Drawing from a unique data set comprising 2,893 banks and 152 countries over the period 1987 to 2000, we test whether the adoption of the Basel Accord by Latin American and Caribbean countries was responsible for the serious slowdowns in credit growth experienced by these countries. We find...

The global financial crisis has highlighted the importance of early identification of weak banks: when problems are identified late, solutions are much more costly. Until recently, Europe has seen only a small number of outright bank failures, which made the estimation of early warning models...

This paper studies the impact of bank regulation and taxation in a dynamic model with banks exposed to credit and liquidity risk. We find an inverted U-shaped relationship between capital requirements and bank lending, efficiency, and welfare, with their benefits turning into costs beyond a...

This note overviews macroprudential policy options that have been proposed to address the systemic risks experienced during the recent financial crisis. It contributes to the policy debate by providing a taxonomy of macroprudential policies in terms of the specific negative externalities in the...