Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/174463 
Year of Publication: 
2017
Series/Report no.: 
Working Papers No. 2017-10
Publisher: 
Banco de México, Ciudad de México
Abstract: 
In a New Keynesian model with the BGG accelerator and risk shocks, we show that violations of Tinbergen's Rule and strategic interaction between economic authorities undermine the effectiveness of monetary and financial policies. Separate monetary and financial policy rules produce higher welfare than a monetary rule augmented with credit spreads. The latter yields a tight money-tight credit regime in which the interest rate responds too much to inflation and not enough to credit. Reaction curves for the policy-rule elasticities are nonlinear, which reflects shifts in these elasticities from strategic substitutes to complements. The Nash equilibrium is inferior to the Cooperative equilibrium, both are inferior to a first-best outcome, and both might produce tight money-tight credit regimes.
Subjects: 
Financial Frictions
Monetary Policy
Financial Policy
JEL: 
E44
E52
E58
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size
1.22 MB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.