Walter Bagehot's putative principles of lending in liquidity crises - to lend freely to solvent banks with good collateral but at penalty rates - have served as a theoretical basis for thinking about the lender of last resort for close to 100 years, while simultaneously providing justification...

The paper reviews the policy response of major central banks during the 2007-08 financial market turbulence and suggests that there is scope for convergence among central bank operational frameworks through the adoption of those elements that proved most instrumental in calming markets. These...

Central banks repo market operations and liquidity infusions occasion a structural liquidity mismatch in bank balance sheets and increase the dependence on central bank liquidity. This paper argues for what I term “Circular Monetary Economics”, an approach to monetary policy that seeks to...

The euro area experience during the financial crisis highlighted the importance of financial and sovereign risk factors in macroeconomic propagation, as well as the constraints that bank lending fragmentation would pose for monetary policy conduct in a currency union. We design a 6-region...

We introduce the concept of a financial stability real interest rate using a macroeconomic banking model with an occasionally binding financing constraint, as in Gertler and Kiyotaki (2010). The financial stability interest rate, r**, is the threshold interest rate that triggers the constraint...

We propose a new strength measure of the global financial cycle by estimating a regimeswitching factor model on cross-border equity flows for 61 countries. We then assess how the strength of the global financial cycle affects monetary policy independence, which is defined as the response of...

The author studies a simple dynamic general equilibrium monetary model to interpret key macroeconomic developments in the U.S. economy both before and after the Great Recession. In normal times, when the Federal Reserve’s policy rate is above the interest paid on reserves, countercyclical...

Central banks may face challenges in achieving their price stability goals when financial stability risks are present. There is, however, considerable heterogeneity among central banks with respect to how they manage these potential trade-offs. In this paper, we review the institutional and...

Walter Bagehot's putative principles of lending in liquidity crises — to lend freely to solvent banks with good collateral but at penalty rates — have served as a theoretical basis for thinking about the lender of last resort for close to 100 years, while simultaneously providing...