Analysis of Monetary Policy and Financial Stability: A New Paradigm

Goodhart, Charles; Osorio, Carolina; Tsomocos, Dimitrios P.

doi:10.2139/ssrn.1532675

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Analysis of Monetary Policy and Financial Stability: A New Paradigm

CESifo Working Paper Series No. 2885

39 Pages Posted: 10 Jan 2010

See all articles by Charles Goodhart

Charles Goodhart

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

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: 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 or http://dx.doi.org/10.2139/ssrn.1532675