We introduce time-varying systemic risk in an otherwise standard New-Keynesian model to study whether a simple leaning-against-the-wind policy can reduce systemic risk and improve welfare. We find that an unexpected increase in policy rates reduces output, inflation, and asset prices without...

Monetary policy implementation in a federal country requires both vertical (national and subnational governments) and horizontal (between subnational jurisdictions) institutional coordination. The optimal centralized monetary policy is blind and potentially nonheterogeneous at the subnational...

"Today's global financial system bears little resemblance to what it was at the end of the twentieth century. Shadow banking--financial activity taking place outside existing regulatory frameworks--has grown so important that it now serves as the backbone of the entire system. The shadow banking...