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10 - Liquidity, Default and the Interaction of Financial Stability and Monetary Policy

from Part II - Financial Stability and Regulatory Policy

Published online by Cambridge University Press:  29 March 2018

Philipp Hartmann
Affiliation:
European Central Bank, Frankfurt
Haizhou Huang
Affiliation:
China International Capital Corporation
Dirk Schoenmaker
Affiliation:
Erasmus Universiteit Rotterdam
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Summary

“Default is to macro-economics what sin is to theology: regrettable but central and essential”. The contemporaneous assessment of both liquidity and default within a framework of missing financial markets, multiple currencies, heterogeneous economic actors (i.e., investors, firms and intermediaries) and multiple externalities is warranted for analysing the interplay of financial and price stability. Thus, the complementarity and substitutability of regulatory and monetary policies can be identified and dissected. The optimal policy mix may be subsequently determined given the objectives of the fiscal and monetary authorities.
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Publisher: Cambridge University Press
Print publication year: 2018

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