We show that a reduction in lender of last resort (LOLR) policy uncertainty posi-tively affects bank lending and propagates to investment and employment. We exploita unique policy that reduced uncertainty regarding the availability of future LOLRfunding for banks as a quasi-natural experiment....

We augment a standard New Keynesian model with a financial accelerator mechanism and show that financial frictions generate large state-dependent amplification effects. We fit the model to US data and show that, when shocks drive the model far away from the steady state, the nonlinear model...

The implications of uncertain policy preferences for the targeting and contracting approaches to monetary policy are investigated. It is shown that, in the presence of uncertain preferences, a linear incentive contract in the sense of Walsh performs better than an explicit inflation target as...

This paper studies the extent to which monetary policy may affect banks' perception of credit risk and the way banks measure risk under the internal ratings-based approach. Specifically, we analyze the effect of different monetary policy indicators on banks' risk weights for credit risk. We...

After the Lehman default, but also during the euro area sovereign debt crisis, central banks have tended to extend the ability of banks to take recourse to central bank credit operations through changes of the collateral framework (e.g. CGFS, 2008 – in consistence with previous narratives,...

This paper is an application of the framework developed in Pinkwart (2010a), which allows to analyze changes of the monetary policy regime under uncertain inflation dynamics that alter the steady state properties of the underlying model as well as the stochastic dependencies between model...

This paper offers several contributions to actual research and discussion on monetary policy. It clarifies the relationship between uncertainty of inflation persistence and optimal monetary policy and discusses the consequences of the recent Blanchard proposal to implement a higher inflation...

This paper offers several contributions to actual research and discussion on monetary policy. It clarifies the relationship between uncertainty of inflation persistence and optimal monetary policy and discusses the consequences of the recent Blanchard proposal to implement a higher inflation...

In this paper, we derive a modification of a forward-looking Taylor rule, which integrates two variables measuring the uncertainty of inflation and GDP growth forecasts into an otherwise standard New Keynesian model. We show that certainty-equivalence in New Keynesian models is a consequence of...

In 1994 the Federal Reserve System moved to a more transparent reporting of monetary policy. In this paper we first discuss the various sources of uncertainty that play an essential role in the formulation and conduct of monetary policy and evaluate the degree of uncertainty faced by monetary...