‘Financial conditions targeting’ could help stabilise output – paper
“Risk-centric” New Keynesian model highlights benefit of acting on financial conditions
Central banks could do a better job of stabilising the economy if they aim to stabilise financial conditions, new research finds.
This conclusion is based on a “risk-centric” New Keynesian model, developed by economists Ricardo Caballero, Tomás Caravello and Alp Simsek in a working paper. The key feature of the model that differentiates it from standard New Keynesian models is that monetary policy transmits through financial conditions.
The authors note “noise shocks” – or changes in financial
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