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http://hdl.handle.net/10419/26016
  
Title:Financial stability and monetary policy: a framework PDF Logo
Authors:Illing, Gerhard
Issue Date:2007
Series/Report no.:CESifo working paper 1971
Abstract:The paper presents a stylised framework to analyse conditions under which monetary policy contributes to amplified movements in the housing market. Extending work by Hyun Shin (2005), the paper analyses self enforcing feedback mechanisms resulting in amplifier effects in a credit constrained economy. The paper characterizes conditions for asymmetric effects, causing systemic crises. By injecting liquidity, monetary policy can prevent a meltdown. Anticipating such a response, private agents are encouraged to take higher risks. Provision of liquidity works as a public good, but it may create potential conflicts with other policy objectives and may give incentives to build up leverage with a high systemic exposure to small probability events.
JEL:E44
G18
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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