Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210044
Authors: 
Cao, Jin
Chollete, Lorán
Year of Publication: 
2013
Series/Report no.: 
Working Paper No. 2013/21
Publisher: 
Norges Bank, Oslo
Abstract: 
Most theoretical central bank models use short horizons and focus on a single tradeoff. However, in reality, central banks play complex, long-horizon games and face more than one tradeoff. We account for these issues in a simple infinite-horizon game with a novel tradeoff: higher rates deter financial imbalances, but lower rates reduce the likelihood of insolvency. We term these factors discipline and stability effects, respectively. The central bank's welfare decreases with dependence between real and financial shocks, so it may reduce costs with correlation-indexed securities. In our model, independent central banks cannot in general attain both low inflation and financial stability.
Subjects: 
central bank
correlation-indexed security
discipline effect
stability effect
JEL: 
E50
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-774-2
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





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