Authors: Tobias Adrian and Fernando Duarte
-
-
The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
Do you have a request for information and records? Learn how to submit it.
Learn about the history of the New York Fed and central banking in the United States through articles, speeches, photos and video.
-
-
-
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
-
-
-
The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
The growing role of nonbank financial institutions, or NBFIs, in U.S. financial markets is a transformational trend with implications for monetary policy and financial stability.
The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
-
-
Staff Reports
Financial Vulnerability and Monetary Policy
December 2016 Number 804
Revised November 2020
Revised November 2020
JEL classification: G10, G12, E52
We present a microfounded New Keynesian model that features financial vulnerabilities. Financial intermediaries’ occasionally binding value at risk constraints give rise to variation in the pricing of risk that generates time varying risk in the conditional mean and volatility of the output gap. The conditional mean and volatility of the output gap are negatively related: during times of easy financial conditions, growth tends to be high, and risk tends to be low. Monetary policy affects output directly via the IS curve, and indirectly via the pricing of risk that relates to the tightness of the value at risk constraints. The optimal monetary policy rule always depends on financial vulnerabilities in addition to the output gap, inflation, and the natural rate. We show that a classic Taylor rule exacerbates deviations of the output gap from its target value of zero relative to an optimal interest rate rule that includes vulnerability. Simulations show that optimal policy significantly increases welfare relative to a classic Taylor rule. The model provides a microfoundation for optimal monetary policy frameworks that take into account financial stability.
Tools
E-mail Alerts
By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. 
