Speaker: Professor Fabrice Collard (Toulouse School of Economics)
Hosted by: University of Liverpool Management School's Economics Group
Open to: Management School PhD students and academic staff, with no sign up needed
Date: Wednesday 6 March 2024
Time: 2-3:15pm
Online: join Zoom meeting here
Abstract
We study whether a central bank should deviate from its objective of price stability to promote financial stability.
We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises.
We compare several interest rate rules, under which the central bank responds more or less forcefully to inflation and aggregate output.
Our main findings are threefold. First, monetary policy affects the probability of a crisis both in the short run (through aggregate demand) and in the medium run (through savings and capital accumulation).
Second, a central bank can both reduce the probability of a crisis and increase welfare by departing from strict inflation targeting and responding systematically to fluctuations in output.
Third, financial crises may occur after a long period of unexpectedly loose monetary policy as the central bank abruptly reverses course.
Co-authored by Frederic Boissay, Fabrice Collard, Jordi Galí and Cristina Manea.
Keywords
Inflation targeting, low–rate–for–long, search for yield, financial instability, backstops.
Speaker
Fabrice Collard is the Professor of Economics and Senior Researcher, CNRS, at Toulouse School of Economics. He is the Associate Editor for Journal of Economic Dynamics and Control, Annals of Economics and Statistics and Journal of European Economic Association.
His main fields of interest are Macroeconomics, Business Cycle, Applied Times Series and Computational Economics.
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