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wiiw Seminar Series
'Crisis Management in Central, East and Southeast Europe: What is
to be done?' |
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Ales
Bulir, International Monetary Fund
Monetary Policy Rules with Financial Instability
8 February 2010, 5:15 p.m.
(organized in cooperation with the Joint Vienna Institute) |
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The presentation
is based on a paper written with co-authors Sofia Bauducco and
Martin Cihak. To provide a rigorous analysis of monetary policy
in the face of financial instability, we extend the standard
dynamic stochastic general equilibrium model to include a financial
system. Our simulations suggest that if financial instability
affects output and inflation with a lag, and if the central
bank has privileged information about credit risk, monetary
policy responding instantly to increased credit risk can trade
off more output and inflation instability today for a faster
return to the trend than a policy that follows the simple Taylor
rule. This augmented rule leads in some parameterizations to
improved outcomes in terms of long-term welfare, however, the
welfare impacts of such a rule appear to be negligible.
Ales Bulir has been holding a research position at the IMF since
1993. Earlier he worked at the Czech National Bank. He was assistant
and associate professor at the Prague University of Economics
in 1987-1993 and 2002-2003. He is associate editor of the Czech
Journal of Economics and Finance, member of the editorial board
of Economic Systems, in 2001-2006 he was member of the External
Research Committee of the Czech National Bank. His recent publications
include 'The Dynamic Implications of Foreign Aid and its Variability',
Journal of Development Economics, 2009 (co-authors: C.
Arellano, T. Lane and L. Lipschitz); 'Volatility of Development
Aid: From the Frying Pan into the Fire?', World Development,
2008 (co-author: A. Hamann); and 'Writing Clearly: ECB’s Monetary
Policy Communication', WP/08/252 (co-authors: M. Cihak and K.
Smidkova). |
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