We integrate banks and the coexistence of bank and bond financing into an otherwise standard New Keynesian Framework with capital, and derive the microfounded, bank-augmented IS and Phillips Curves for the corresponding two-sector economy. We study the interplay of monetary and macroprudential...

Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If cross-currency flows are large, the hedging cost...

Monetary policy and financial stability are closely intertwined, and the resilience of the financial system carries weight in this relationship. This paper explores whether the financial system is more resilient as a result of the G20's post-crisis agenda for financial regulatory reform. It...

This paper considers the interdependence of monetary and macroprudential policy in a New Keynesian business cycle model under the zero lower bound constraint. Entrepreneurs borrow in nominal terms from banks and are subject to idiosyncratic default risk. The realized loan return to the bank...

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...

This paper studies the trade-offs that can arise between inflation targeting and financial stability objectives. We use a simple framework to conduct macroeconomic policy analysis under three strategies: (1) a benchmark case where monetary policy pursues traditional price stability objectives;...

After the destructive impact of the global financial crisis of 2008, many believe that pre-crisis financial market regulation did not take the "big picture" of the system suffciently into account and, subsequently, financial supervision mainly "missed the forest for the trees". As a result, the...

We analyse the impact of standard and non-standard monetary policy measures on bank profitability. For empirical identification, the analysis focuses on the euro area, thereby exploiting substantial bank and country heterogeneity within a monetary union where the central bank has implemented a...

A view advanced in the aftermath of the late-2000s financial crisis is that lower than optimal interest rates lead to excessive risk taking by financial intermediaries. We evaluate this view in a quantitative dynamic model in which interest rate policy affects risk taking by changing the amount...

Does the combination of inflation and high corporate taxes explain the increase in bank leverage in the 20th century? Inflation automatically increases bank debt, while high corporate taxes hinder capital accumulation. Capital ratios therefore drop, until leverage-induced returns are sufficient...