Optimal simple objectives for monetary policy when banks matter
Bank of England and CfM; International Monetary Fund and CAMA; Bank of England
Medium-scale New Keynesian DSGE model with financial intermediaries (banks) following Gertler and Karadi (2011), featuring bank balance sheet constraints, moral hazard friction where bankers can divert resources, and endogenous leverage ratios.
intermediate goods producers: perfect competition with Cobb-Douglas production; capital producers: perfect competition with investment adjustment costs; retailers: monopolistic competition with Calvo pricing
Table 4
Alternative optimal dual mandate with spread only (lambda=0, omega=9.601)