Recently, convincing evidence has been presented that the recession in the wake of the recent financial crisis resulted primarily from an overly levered housing sector that was forced to deleverage and cut consumption spending when faced with collapsing housing prices. Following this...

Intro -- Contents -- I. INTRODUCTION -- II. THE MODEL -- III. WELFARE, OUTPUT AND CONSUMPTION -- IV. OPTIMAL MONETARY POLICY AND POLICY COORDINATION -- V. SIMPLE RULES AND WELFARE -- VI. CONCLUSIONS -- REFERENCES.