{
  "title": "Optimal Monetary and Macroprudential Policies under Fire-Sale Externalities",
  "publication": "IMF Working Papers, March 10, 2023",
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  "summary": "I provide an integrated analysis of monetary and macroprudential policies in a model economy featuring a financial friction and a nominal wage rigidity.",
  "sections": [
    {
      "heading": "Summary and research question",
      "content": "- Integrated analysis of monetary and macroprudential policies in a model economy featuring a financial friction and a nominal wage rigidity.\n- Central trade-off for the monetary authority: expansionary counter-cyclical monetary policy prevents involuntary unemployment but amplifies an inefficient reallocation of capital across sectors.\n- Research explores how monetary policy and macroprudential tools interact when fire-sale externalities and nominal wage rigidity are present."
    },
    {
      "heading": "Main contributions and findings",
      "content": "- Highlights a novel channel through which monetary policy can impact financial stability.\n- Shows that, by itself, monetary policy can significantly mitigate the wedge between the constrained efficient and the competitive allocation.\n- Demonstrates that, regardless of the availability of macroprudential tools, stabilizing demand is usually not optimal for monetary policy.\n- Emphasizes the role of expansionary counter-cyclical monetary policy in both preventing unemployment and amplifying inefficient capital reallocation."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Monetary policy cannot be evaluated solely on demand stabilization grounds when fire-sale externalities and nominal wage rigidity are present.\n- Optimal policy requires weighing macroeconomic stabilization against financial-stability externalities arising from asset reallocation and fire-sales.\n- Macroprudential tools interact with monetary policy but do not eliminate the finding that stabilizing demand is usually suboptimal for monetary policy.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2023/03/10/optimal-monetary-and-macroprudential-policies-under-fire-sale-externalities-530404"
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    "Authors: Flora Lutz",
    "Published: March 10, 2023",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400235191.001",
    "Integrated analysis of monetary and macroprudential policies in a model economy featuring a financial friction and a nominal wage rigidity.",
    "Central trade-off for the monetary authority: expansionary counter-cyclical monetary policy prevents involuntary unemployment but amplifies an inefficient reallocation of capital across sectors.",
    "Research explores how monetary policy and macroprudential tools interact when fire-sale externalities and nominal wage rigidity are present.",
    "Highlights a novel channel through which monetary policy can impact financial stability.",
    "Shows that, by itself, monetary policy can significantly mitigate the wedge between the constrained efficient and the competitive allocation.",
    "Demonstrates that, regardless of the availability of macroprudential tools, stabilizing demand is usually not optimal for monetary policy.",
    "Emphasizes the role of expansionary counter-cyclical monetary policy in both preventing unemployment and amplifying inefficient capital reallocation.",
    "Monetary policy cannot be evaluated solely on demand stabilization grounds when fire-sale externalities and nominal wage rigidity are present.",
    "Optimal policy requires weighing macroeconomic stabilization against financial-stability externalities arising from asset reallocation and fire-sales.",
    "Macroprudential tools interact with monetary policy but do not eliminate the finding that stabilizing demand is usually suboptimal for monetary policy.",
    "**Working Paper**"
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