BoE paper explores monetary and macro-prudential policy interactions
When interest rates are the "only" policy instrument available, there can be a "policy trade-off" between macroeconomic policy and financial stability in response to "contractionary shocks", according to a working paper published by the Bank of England.
In Does easing monetary policy increase financial instability? Ambrogio Cesa-Bianchi and Alessandro Rebucci present a model where, when both macroeconomic and financial frictions are "at work" at the same time, it can "require interventions of
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