Analysis of Monetary Policy and Financial Stability: A New Paradigm

39 Pages Posted: 10 Jan 2010

See all articles by Charles Goodhart

Charles Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group

Carolina Osorio

affiliation not provided to SSRN

Dimitrios P. Tsomocos

University of Oxford - Said Business School and St. Edmund Hall

Date Written: December 2009

Abstract

This paper introduces agent heterogeneity, liquidity, and endogenous default to a DSGE framework. Our model allows for a comprehensive assessment of regulatory and monetary policy, as well as welfare analysis in the different sectors of the economy. Due to liquidity and endogenous default, the transmission mechanism of shocks is well defined, and their short to medium run effects on financial stability are properly captured.

Keywords: general equilibrium, financial fragility, monetary policy, regulation

JEL Classification: D50, E43, E44, E50, G01, G20

Suggested Citation

Goodhart, Charles A.E. and Osorio, Carolina and Tsomocos, Dimitrios P., Analysis of Monetary Policy and Financial Stability: A New Paradigm (December 2009). CESifo Working Paper Series No. 2885. Available at SSRN: https://ssrn.com/abstract=1532675

Charles A.E. Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom
0207 955 7555 (Phone)
0207 242 1006 (Fax)

Carolina Osorio (Contact Author)

affiliation not provided to SSRN ( email )

Dimitrios P. Tsomocos

University of Oxford - Said Business School and St. Edmund Hall ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 288 932 (Phone)
+44 1865 288 805 (Fax)

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