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We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate...
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During the financial crisis of 2007/08 the level and volatility of interest rate spreads increased dramatically. This … paper examines how the choice of the target interest rate for monetary policy affects the volatility of inflation, the …
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