02095cas a2200277 a 4500 AALejournalIMF011315 230101c9999 xx r poo 0 0eng d 5.00 USD 9781463921286 1018-5941 BD-DhAAL BD-DhAAL Luna, Leonardo. Incorporating Financial Sector Risk Into Monetary Policy Models : Application to Chile / Leonardo Luna, Dale Gray, Jorge Restrepo, Carlos Garcia. Washington, D.C. : International Monetary Fund, 2011. 1 online resource (34 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper builds a model of financial sector vulnerability and integrates it into a macroeconomic framework, typically used for monetary policy analysis. The main question to be answered with the integrated model is whether or not the central bank should include explicitly the financial stability indicator in its monetary policy (interest rate) reaction function. It is found in general, that including distance-to-default (dtd) of the banking system in the central bank reaction function reduces both inflation and output volatility. Moreover, the results are robust to different model calibrations: whenever exchange-rate pass-through is higher; financial vulnerability has a larger impact on the exchange rate, as well as on GDP (or the reverse, there is more effect of GDP on bank's equity - id est, what we call endogeneity), it is more efficient to include dtd in the reaction function. Mode of access: Internet Garcia, Carlos. Gray, Dale. Restrepo, Jorge. IMF Working Papers; Working Paper ; No. 2011/228 Full text available on IMF http://elibrary.imf.org/view/journals/001/2011/228/001.2011.issue-228-en.xml IMF e-Library