02247cas a2200253 a 4500 AALejournalIMF015321 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513588490 1018-5941 BD-DhAAL BD-DhAAL Cesa-Bianchi, Ambrogio. Does Easing Monetary Policy Increase Financial Instability? / Ambrogio Cesa-Bianchi, Alessandro Rebucci. Washington, D.C. : International Monetary Fund, 2015. 1 online resource (47 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 develops a model featuring both a macroeconomic and a financial friction that speaks to the interaction between monetary and macro-prudential policies. There are two main results. First, real interest rate rigidities in a monopolistic banking system have an asymmetric impact on financial stability: they increase the probability of a financial crisis (relative to the case of flexible interest rate) in response to contractionary shocks to the economy, while they act as automatic macro-prudential stabilizers in response to expansionary shocks. Second, when the interest rate is the only available policy instrument, a monetary authority subject to the same constraints as private agents cannot always achieve a (constrained) efficient allocation and faces a trade-off between macroeconomic and financial stability in response to contractionary shocks. An implication of our analysis is that the weak link in the U.S. policy framework in the run up to the Global Recession was not excessively lax monetary policy after 2002, but rather the absence of an effective regulatory framework aimed at preserving financial stability. Mode of access: Internet Rebucci, Alessandro. IMF Working Papers; Working Paper ; No. 2015/139 Full text available on IMF http://elibrary.imf.org/view/journals/001/2015/139/001.2015.issue-139-en.xml IMF e-Library