Incorporating financial sector risk into monetary policy models: application to Chile

This article analyzes whether market-based financial stability indicators (FSIs) should be included in monetary policy models and, if so, how. Since the economy and interest rates affect financial sector credit risk, and the financial sector affects the economy, this article builds a model of financ...

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Autores principales:	Gray, Dale, García T., Carlos, Luna B., Leonardo, Restrepo L., Jorge E.
Formato:	Artículo
Lenguaje:	eng
Publicado:	Banco Central de Chile 2019
Materias:	RIESGO FINANCIERO POLÍTICA MONETARIA
Acceso en línea:	https://hdl.handle.net/20.500.12580/3761
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spelling	oai-20.500.12580-37612021-04-24T11:03:53Z Incorporating financial sector risk into monetary policy models: application to Chile Gray, Dale García T., Carlos Luna B., Leonardo Restrepo L., Jorge E. RIESGO FINANCIERO POLÍTICA MONETARIA This article analyzes whether market-based financial stability indicators (FSIs) should be included in monetary policy models and, if so, how. Since the economy and interest rates affect financial sector credit risk, and the financial sector affects the economy, this article builds a model of financial sector vulnerability and integrates it into a macroeconomic framework, typically used for monetary policy analysis. More specifically, should the central bank explicitly include the financial stability indicator in its monetary policy (interest rate) reaction function? This is the most important question to be answered in this article. The alternative would be to react only indirectly to financial risk by reacting to inflation and gross domestic product (GDP) gaps, since they already include the effect that financial factors have on the economy. 2019-11-01T00:04:53Z 2019-11-01T00:04:53Z 2010 Artículo 978-956-7421-34-3 https://hdl.handle.net/20.500.12580/3761 eng Series on Central Banking, Analysis, and Economic Policies, no. 15 Attribution-NonCommercial-NoDerivs 3.0 Chile http://creativecommons.org/licenses/by-nc-nd/3.0/cl/ .pdf Sección o Parte de un Documento p. 159-197 application/pdf CHILE Banco Central de Chile
institution	Banco Central
collection	Banco Central
language	eng
topic	RIESGO FINANCIERO POLÍTICA MONETARIA
spellingShingle	RIESGO FINANCIERO POLÍTICA MONETARIA Gray, Dale García T., Carlos Luna B., Leonardo Restrepo L., Jorge E. Incorporating financial sector risk into monetary policy models: application to Chile
description	This article analyzes whether market-based financial stability indicators (FSIs) should be included in monetary policy models and, if so, how. Since the economy and interest rates affect financial sector credit risk, and the financial sector affects the economy, this article builds a model of financial sector vulnerability and integrates it into a macroeconomic framework, typically used for monetary policy analysis. More specifically, should the central bank explicitly include the financial stability indicator in its monetary policy (interest rate) reaction function? This is the most important question to be answered in this article. The alternative would be to react only indirectly to financial risk by reacting to inflation and gross domestic product (GDP) gaps, since they already include the effect that financial factors have on the economy.
format	Artículo
author	Gray, Dale García T., Carlos Luna B., Leonardo Restrepo L., Jorge E.
author_facet	Gray, Dale García T., Carlos Luna B., Leonardo Restrepo L., Jorge E.
author_sort	Gray, Dale
title	Incorporating financial sector risk into monetary policy models: application to Chile
title_short	Incorporating financial sector risk into monetary policy models: application to Chile
title_full	Incorporating financial sector risk into monetary policy models: application to Chile
title_fullStr	Incorporating financial sector risk into monetary policy models: application to Chile
title_full_unstemmed	Incorporating financial sector risk into monetary policy models: application to Chile
title_sort	incorporating financial sector risk into monetary policy models: application to chile
publisher	Banco Central de Chile
publishDate	2019
url	https://hdl.handle.net/20.500.12580/3761
work_keys_str_mv	AT graydale incorporatingfinancialsectorriskintomonetarypolicymodelsapplicationtochile AT garciatcarlos incorporatingfinancialsectorriskintomonetarypolicymodelsapplicationtochile AT lunableonardo incorporatingfinancialsectorriskintomonetarypolicymodelsapplicationtochile AT restrepoljorgee incorporatingfinancialsectorriskintomonetarypolicymodelsapplicationtochile
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Incorporating financial sector risk into monetary policy models: application to Chile

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