We examine how borrowing constraints affect monetary transmission and the trade-off of a welfare maximizing central bank. We develop a sticky price model where money serves as the means of payment and ex-ante identical agents borrow/lend among each other. The credit market is distorted as...

This paper presents a framework that quantifies the trade-offs for a central bank that includes financial stability in its strategy and uses macroprudential instruments next to the interest rate. It is an innovative application of the Kaminsky and Reinhart early warning method, by assuming that...

Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated banking but had imposed tighter financial standards, the housing boom and bust - and the subsequent...

In the late 1970s, numerous domestic and external factors began to destabilize the Central American economies. In some cases, a misperception of the seriousness of these problems and a desire to prolong the economic bonanza led to the implementation of countercyclical policies and the...

The U.S. Federal Reserve has committed hundreds of billions of dollars in unprecedented lending activities and purchases of mortgage-backed securities based upon its authority under the Federal Reserve Act, and particularly upon its interpretation of Section 13(3), a formerly untested and unused...

Using micro price data covering the Great Recession period, we document new facts on price rigidity in France: (i) each month, 17% of prices are changed versus 23% in the United States. When sales are excluded, only 14% of prices are modified in France versus 15% in the United States; (ii) the...

We utilize a unique micro price data set for Greece that underpins the Greek CPI. It spans almost two decades, during which Greece suffered a large economic shock. We find that during this time there were significant changes in the pricing behavior of Greek firms. We also find macro-economic...

This paper studies leverage regulation and monetary policy when equity investors and/or creditors have distorted beliefs relative to a planner. We characterize how the optimal leverage regulation responds to arbitrary changes in investors' and creditors' beliefs and relate our results to...

We introduce time-varying systemic risk (à la He and Krishnamurthy, 2014) in an otherwise standard New-Keynesian model to study whether simple leaning-against-the-wind interest rate rules can reduce systemic risk and improve welfare. We find that while financial sector leverage contains...