We integrate banks and the coexistence of bank and bond financing into an otherwise standard New Keynesian framework … moderate bank credit cycles, and to induce a more efficient allocation of resources across sectors. Moreover, we investigate … that the central bank should focus exclusively on price stability and the macroprudential policy-maker should react …

. Under a binding equity constraint, our model predicts shocks to bank equity, regulatory standards and monetary policy, such …

-taking behaviour in the last decade, which might be offset by more stringent instruments targeting borrowers, bank capital and banks … effective instruments to counteract the effects of (extreme) scenarios of persistent monetary accommodation. Accounting for bank …

inefficiencies, as the various distortions can offset each other. Empirical analysis using bank-level data from the recent crisis …