New Perspectives on Monetary Policy

This paper presents and discusses new perspectives on the framework of monetary policy that challenge the current paradigm: (i) The development of heterogeneous agent models in which “divine coincidence” no longer holds and trade-offs between inflation and output stabilization arise; (ii) New theoretical and empirical evidence on the distributional effects of conventional and unconventional monetary policy; (iii) Evidence that stabilization policy by central banks invites more leverage, risktaking and a rising exposure of intermediaries to the systematic risks that central banks insure, which in turn increases financial and economic fragility.

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