Adrian, Tobias, Liang, Nellie, (2016), “Monetary Policy, Financial Conditions, and Financial Stability”,CEPR DP 11394, July
We review a growing literature that incorporates endogenous risk premiums and risk taking in the conduct of monetary policy. Accommodative policy can create an inter-temporal tradeoff between improving current financial conditions at a cost of increasing future financial vulnerabilities. In the U.S., structural and cyclical macroprudential tools to reduce vulnerabilities at banks are being implemented, but may not be sufficient because activities can migrate and there are limited tools for nonbank intermediaries or for borrowers.
Relevant Posts
- Elena Andreou, Snezana Eminidou, Marios Zachariadis, (2016), “Inflation expectations and monetary policy in Europe”, CEPR DP11306, June
- Dąbrowski, Marek, (2016), “Interaction between monetary policy and bank regulation: lessons for the ECB”, CASE Networks Studies & Analyses No 480 2/2016