Optimal monetary policy in a 'sudden stop'
By: Fabio Braggion, Lawrence J. Christiano, Jorge Roldos
Contributors: Christiano, Lawrence J.; Roldos, Jorge; National Bureau of Economic Research
Series: NBER working paper series -- working paper 13254; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13254.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "In the wake of the 1997-98 financial crises, interest rates in Asia were raised immediately, and then reduced sharply.  We describe an environment in which this is the optimal monetary policy.  The optimality of the immediate rise in the interest rate is an example of the theory of the second best: although high interest rates introduce an inefficiency wedge into the labor market, they are nevertheless welfare improving because they mitigate distortions due to binding collateral constraints.  Over time, as various real frictions wear off and the collateral constraint is less binding, the familiar Friedman forces dominate, and interest rates are optimally set as low as possible"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 8/16/2007.

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