The recent financial crisis has highlighted the interconnectedness between macroeconomic and financial stability and has raised the question of whether and how to combine the corresponding main policy instruments (interest rate and bank-capital requirements). This paper offers a characterization...

This paper incorporates banks as well as frictions in the market for bank capital into a standard New Keynesian model and considers the positive and normative implications of various financial shocks. It shows that the frictions matter significantly for the effects of the shocks and the...

We study the properties of alternative central bank targeting procedures in a general equilibrium, monetary model of the US economy with labor contracts, endogenous velocity and three shocks: money demand, supply and fiscal. Money demand – velocity – shocks emerge as the main source of...

Monetary union can benefit countries suffering from policy credibility problems if it eliminates the inflation bias and also allows for more efficient management of certain shocks. But it also carries costs as some stabilization may be feasible even in the absence of credibility, and this may be...

We study the properties of alternative central bank targeting procedures in a general equilibrium, monetary model of the US economy with labor contracts, endogenous velocity and three shocks: money demand, supply and fiscal. Money demand – velocity – shocks emerge as the main...