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Louisphilippe Rochon - One of the best experts on this subject based on the ideXlab platform.

  • the new consensus and post keynesian Interest Rate Policy
    Review of Political Economy, 2007
    Co-Authors: Claude Gnos, Louisphilippe Rochon
    Abstract:

    This paper outlines the fundamental arguments of the New Consensus, critiques it from a Post-Keynesian perspective, and offers a Post-Keynesian alternative to the Taylor Rule. While Post-Keynesian economics provides a theory of endogenous money with exogenous Interest Rates, it has no clear description of a central bank reaction function. We attempt to remedy this oversight by identifying some of the difficulties attached to developing a Post-Keynesian reaction function, and suggesting an approach to the setting of Interest Rates that is more consistent than the Taylor Rule with Keynes's General Theory.

  • the new consensus and post keynesian Interest Rate Policy
    Post-Print, 2007
    Co-Authors: Claude Gnos, Louisphilippe Rochon
    Abstract:

    This paper outlines the fundamental arguments of the New Consensus, critiques it from a Post-Keynesian perspective, and offers a Post-Keynesian alternative to the Taylor Rule. While Post-Keynesian economics provides a theory of endogenous money with exogenous Interest Rates, it has no clear description of a central bank reaction function. We attempt to remedy this oversight by identifying some of the difficulties attached to developing a Post-Keynesian reaction function, and suggesting an approach to the setting of Interest Rates that is more consistent than the Taylor Rule with Keynes's General Theory. (This abstract was borrowed from another version of this item.)

Claude Gnos - One of the best experts on this subject based on the ideXlab platform.

  • the new consensus and post keynesian Interest Rate Policy
    Review of Political Economy, 2007
    Co-Authors: Claude Gnos, Louisphilippe Rochon
    Abstract:

    This paper outlines the fundamental arguments of the New Consensus, critiques it from a Post-Keynesian perspective, and offers a Post-Keynesian alternative to the Taylor Rule. While Post-Keynesian economics provides a theory of endogenous money with exogenous Interest Rates, it has no clear description of a central bank reaction function. We attempt to remedy this oversight by identifying some of the difficulties attached to developing a Post-Keynesian reaction function, and suggesting an approach to the setting of Interest Rates that is more consistent than the Taylor Rule with Keynes's General Theory.

  • the new consensus and post keynesian Interest Rate Policy
    Post-Print, 2007
    Co-Authors: Claude Gnos, Louisphilippe Rochon
    Abstract:

    This paper outlines the fundamental arguments of the New Consensus, critiques it from a Post-Keynesian perspective, and offers a Post-Keynesian alternative to the Taylor Rule. While Post-Keynesian economics provides a theory of endogenous money with exogenous Interest Rates, it has no clear description of a central bank reaction function. We attempt to remedy this oversight by identifying some of the difficulties attached to developing a Post-Keynesian reaction function, and suggesting an approach to the setting of Interest Rates that is more consistent than the Taylor Rule with Keynes's General Theory. (This abstract was borrowed from another version of this item.)

Raghuram G Rajan - One of the best experts on this subject based on the ideXlab platform.

  • illiquid banks financial stability and Interest Rate Policy
    National Bureau of Economic Research, 2011
    Co-Authors: Douglas W Diamond, Raghuram G Rajan
    Abstract:

    Do low Interest Rates alleviate banking fragility? Banks finance illiquid assets with demandable deposits, which discipline bankers but expose them to damaging runs. Authorities may choose to bail out banks being run. Unconstrained bailouts undermine the disciplinary role of deposits. Moreover, competition forces banks to promise depositors more, increasing intervention and making the system worse off. By contrast, constrained intervention to lower Rates maintains private discipline, while offsetting contractual rigidity. It may still lead banks to make excessive liquidity promises. Anticipating this, central banks can reduce financial fragility by raising Rates in normal times to offset their propensity to reduce Rates in adverse times.

  • illiquid banks financial stability and Interest Rate Policy
    National Bureau of Economic Research, 2011
    Co-Authors: Douglas W Diamond, Raghuram G Rajan
    Abstract:

    Banks finance illiquid assets with demandable deposits, which discipline bankers but expose them to damaging runs. Authorities may not want to stand by and watch banks collapse. However, unconstrained direct bailouts undermine the disciplinary role of deposits. Moreover, competition forces banks to promise depositors more, increasing intervention and making the system worse off. By contrast, constrained central bank intervention to lower Rates maintains private discipline, while offsetting contractual rigidity. It may still lead banks to make excessive liquidity promises. Anticipating this, central banks should raise Rates in normal times to offset distortions from reducing Rates in adverse times.

  • illiquidity and Interest Rate Policy
    National Bureau of Economic Research, 2009
    Co-Authors: Douglas W Diamond, Raghuram G Rajan
    Abstract:

    The cheapest way for banks to finance long term illiquid projects is typically to borrow short term from households. But when household needs for funds are high, Interest Rates will rise sharply, debtors will have to shut down illiquid projects, and in extremis, will face more damaging runs. Authorities may want to push down Interest Rates to maintain economic activity in the face of such illiquidity, but intervention may not always be feasible, and when feasible, could encourage banks to increase leverage or fund even more illiquid projects up front. This could make all parties worse off. Authorities may want to commit to a specific Policy of Interest Rate intervention to restore appropriate incentives. For instance, to offset incentives for banks to make more illiquid loans, authorities may have to commit to raising Rates when low, to counter the distortions created by lowering them when high. We draw implications for Interest Rate Policy to combat illiquidity.

Douglas W Diamond - One of the best experts on this subject based on the ideXlab platform.

  • illiquid banks financial stability and Interest Rate Policy
    National Bureau of Economic Research, 2011
    Co-Authors: Douglas W Diamond, Raghuram G Rajan
    Abstract:

    Do low Interest Rates alleviate banking fragility? Banks finance illiquid assets with demandable deposits, which discipline bankers but expose them to damaging runs. Authorities may choose to bail out banks being run. Unconstrained bailouts undermine the disciplinary role of deposits. Moreover, competition forces banks to promise depositors more, increasing intervention and making the system worse off. By contrast, constrained intervention to lower Rates maintains private discipline, while offsetting contractual rigidity. It may still lead banks to make excessive liquidity promises. Anticipating this, central banks can reduce financial fragility by raising Rates in normal times to offset their propensity to reduce Rates in adverse times.

  • illiquid banks financial stability and Interest Rate Policy
    National Bureau of Economic Research, 2011
    Co-Authors: Douglas W Diamond, Raghuram G Rajan
    Abstract:

    Banks finance illiquid assets with demandable deposits, which discipline bankers but expose them to damaging runs. Authorities may not want to stand by and watch banks collapse. However, unconstrained direct bailouts undermine the disciplinary role of deposits. Moreover, competition forces banks to promise depositors more, increasing intervention and making the system worse off. By contrast, constrained central bank intervention to lower Rates maintains private discipline, while offsetting contractual rigidity. It may still lead banks to make excessive liquidity promises. Anticipating this, central banks should raise Rates in normal times to offset distortions from reducing Rates in adverse times.

  • illiquidity and Interest Rate Policy
    National Bureau of Economic Research, 2009
    Co-Authors: Douglas W Diamond, Raghuram G Rajan
    Abstract:

    The cheapest way for banks to finance long term illiquid projects is typically to borrow short term from households. But when household needs for funds are high, Interest Rates will rise sharply, debtors will have to shut down illiquid projects, and in extremis, will face more damaging runs. Authorities may want to push down Interest Rates to maintain economic activity in the face of such illiquidity, but intervention may not always be feasible, and when feasible, could encourage banks to increase leverage or fund even more illiquid projects up front. This could make all parties worse off. Authorities may want to commit to a specific Policy of Interest Rate intervention to restore appropriate incentives. For instance, to offset incentives for banks to make more illiquid loans, authorities may have to commit to raising Rates when low, to counter the distortions created by lowering them when high. We draw implications for Interest Rate Policy to combat illiquidity.

Andres Velasco - One of the best experts on this subject based on the ideXlab platform.

  • optimal Interest Rate Policy in a small open economy
    National Bureau of Economic Research, 2002
    Co-Authors: Eric Parrado, Andres Velasco
    Abstract:

    Using an optimizing model we derive the optimal monetary and exchange Rate Policy for a small stochastic open economy with imperfect competition and short run price rigidity. The optimal monetary Policy has an exact closed-form solution and is obtained using the utility function of the representative home agent as welfare criterion. The optimal Policy depends on the source of stochastic disturbances affecting the economy, much as in the literature pioneered by Poole (1970). Optimal monetary Policy reacts to domestic and foreign disturbances. If the intertemporal elasticity of substitution in consumption is less than one, as is likely to be the case empirically, the optimal exchange Rate Policy implies a dirty float: Interest Rate shocks from abroad are met partially by adjusting home Interest Rates, and partially by allowing the exchange Rate to move. This optimal pattern may help rationalize the observed fear of floating.