01891cas a2200265 a 4500 AALejournalIMF014574 230101c9999 xx r poo 0 0eng d 5.00 USD 9781498305327 1018-5941 BD-DhAAL BD-DhAAL Furlanetto, Francesco. Output Gap in Presence of Financial Frictions and Monetary Policy Trade-offs / Francesco Furlanetto, Paolo Gelain, Marzie Taheri Sanjani. Washington, D.C. : International Monetary Fund, 2014. 1 online resource (44 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 The recent global financial crisis illustrates that financial frictions are a significant source of volatility in the economy. This paper investigates monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We derive a measure of output gap that accounts for frictions in financial market. Furthermore we illustrate that, in the presence of financial frictions, a benevolent central bank faces a substantial trade-off between nominal and real stabilization; optimal monetary policy significantly reduces fluctuations in price and wage inflations but fails to alleviate the output gap volatility. This suggests a role for macroprudential policies. Mode of access: Internet Gelain, Paolo. Taheri Sanjani, Marzie. IMF Working Papers; Working Paper ; No. 2014/128 Full text available on IMF http://elibrary.imf.org/view/journals/001/2014/128/001.2014.issue-128-en.xml IMF e-Library