The global financial crisis that began in mid-2007 has renewedconcerns about financial instability and focused attention onthe fundamental role of central banks in preventing andmanaging systemic crises. In response to the turmoil, centralbanks have made extensive use of both new and existing...

In this paper, we assess the effects of changes to the primarycredit facility since August 2007 by performing out-of-samplesimulations based on a model developed by Artuç andDemiralp (2008). Our results are highly consistent with thepredictions of our 2008 study—that is, the revised...

Monetary policy has traditionally been viewed as theprocess by which a central bank uses its influence overthe supply of money to promote its economic objectives. Forexample, Milton Friedman (1959, p. 24) defined the tools ofmonetary policy to be those “powers that enable the [FederalReserve]...

This paper investigates the relationship between short-term interest rates and bank risk. Using a unique database that includes quarterly balance sheet information for listed banks operating in the European Union and the United States in the last decade, we find evidence that unusually low...

A central proposition in research on the role that banks play in the transmission mechanism is that monetary policy imparts a direct impact on deposits and that deposits, insofar as they constitute the supply of loanable funds, act as the driving force of bank lending. This paper argues that the...

This paper addresses the relevance of the bank lending channel in the transmission of monetary policy in Germany on the basis of a structural vector error correction model (VECM). In order to deal with the fundamental problem of identification we use restriction tests on cointegration vectors to...

We extend the basic (representative-household) New Keynesian [NK] model ofthe monetary transmission mechanism to allow for a spread between the interestrate available to savers and borrowers, that can vary for either exogenous orendogenous reasons. We nd that the mere existence of a positive...

This paper investigates the effect of interest rate policy on stock marketbubbles and trading behavior in experimental asset markets. For this purpose, weintroduce the possibility of investing in interest bearing bonds to the classicallaboratory asset market design of Smith, Suchanek, and...

The unfolding financial turmoil in mature economies has prompted the official and private sectors to reconsider policies, business models and risk management practices. Regardless of its future evolution, it already threatens to become one of the defining economic moments of the 21st century....