Monetary Policy When the Central Bank Shapes Financial-Market Sentiment

Bibliographic Data

ID14855320
AuthorsAnil Kashyap (0000-0002-9381-7663, National Bureau of Economic Research), Anil K Kashyap (Anil K Kashyap is Stevens Distinguished Service Professor of Economics and Finance, University of Chicago Booth School of Business, Chicago, Illinois. Research Associates, National Bureau of Economic Research, Cambridge, Massachusetts.), Jeremy C Stein (Jeremy C. Stein is Moise Y. Safra Professor of Economics, Harvard University, Cambridge, Massachusetts. Research Associates, National Bureau of Economic Research, Cambridge, Massachusetts.)
Year2023
Volume37
Issue1
Pages53-75
Publication date2023-02-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Journal of Economic Perspectives (JOURNAL)
Journal identifiersISSN: 0895-3309 • E-ISSN: 1944-7965
PublisherAmerican Economic Association (PUBLISHER • US)
DOI10.1257/jep.37.1.53
OpenAlexW4319296093
LanguageEN
Citations received2
References cited16

Recent research has found that monetary policy works in part by influencing the risk premiums on both traded financial-market securities and intermediated loans. Research has also shown that when risk premiums are compressed, there is an increased likelihood of a reversal that damages the credit-supply mechanism and the real economy. Together these effects create an intertemporal tradeoff for monetary policy, as stimulating the economy today can sow the seeds of a future downturn that might be difficult to offset. We draw out some implications of this tradeoff for the conduct of monetary policy

Central bank · Credit channel · Economics · Financial market · Financial system · Inflation targeting · Macroeconomics · Monetary economics · Monetary policy · Recession · Banking stability, regulation, efficiency · Global Financial Crisis and Policies · Monetary Policy and Economic Impact · Finance

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Open DOIOpen Access