Financial intermediaries issue the majority of liquid securities, and nonfinancial firms have become net savers, holding intermediaries' debt as cash. This paper shows that intermediaries' liquidity creation stimulates growth -- firms hold their debt for unhedgeable investment needs -- but also...

This paper empirically studies the impact of the quality of political institutions on the link between central bank independence and inflation. Making use of data on the evolution of central bank independence over time and controlling for possible nonlinearities, we employ interaction models to...

For the academic audience, this paper presents the outcome of a well-identifted, large change in the monetary policy rule from the lens of a standard New Keynesian model and asks whether the model properly captures the effects. For policymakers, it presents a cautionary tale of the dismal...

We examine whether the introduction of the euro had a significantly positive impact on the synchronization of business cycles among members of Economic and Monetary Union (EMU) which might arise due to the lack of country-specific monetary policy shocks in the euro area. Empirical evidence on...

We argue that China's rising shadow banking was inextricably linked to potential balancesheet risks in the banking system. We substantiate this argument with three didactic findings: (1) commercial banks in general were prone to engage in channeling risky entrusted loans; (2) shadow banking...

China monetary policy, as well as its transmission, is yet to be understood by researchers and policymakers. In the spirit of Taylor (1993, 2000), we develop a tractable framework that approximates practical monetary policy of China. The framework, grounded in relevant institutional elements,...

This paper contrasts the United States (US) and European situations during the crisis and examines how much of the crisis has been imported by Europe from the US. The paper argues that Europe never had a chance to avoid contagion from the US. It also documents the relatively limited reaction of...

The financial crisis of 2007-09 highlighted the changing role of financial institutions and the growing importance of the shadow banking system, which grew out of the securitization of assets and the integration of banking with capital market developments. This trend was most pronounced in the...

We reconsider the role of financial intermediaries in monetary economics. We explore the hypothesis that financial intermediaries drive the business cycle by way of their role in determining the price of risk. In this framework, balance sheet quantities emerge as a key indicator of risk appetite...

Central banks have a variety of tools for implementing monetary policy, but the tool that has received the most attention in the literature has been the overnight interest rate. The financial crisis that erupted in the summer of 2007 has refocused attention on other channels of monetary policy,...