A0553
Title: Quantifying financial stability trade-offs for monetary policy
Authors: Frederik Lund-Thomsen - European Central Bank (Germany) [presenting]
Sulkhan Chavleishvili - Aarhus University (Denmark)
Manfred Kremer - European Central Bank (Germany)
Abstract: An empirical approach is proposed to the integration of short- to medium-term financial stability considerations into monetary policy aimed toward achieving conventional macroeconomic stability. A nonlinear vector autoregression is estimated for the euro area covering the real economy, monetary policy, and measures of ex-ante and ex-post systemic risk. Policy implications are derived from scenario analyses, where assumptions about the future paths of the two systemic risk measures imply distinct financial stability trade-offs for monetary policy. Different monetary policy responses are evaluated within an intertemporal cost-benefit analysis that supports asymmetric central bank loss functions and hence, risk management approaches.
