Interest Rates, Prices and Liquidity
Lessons from the Financial Crisis

One of the first book-length examinations of monetary policy instruments used in response to the recent financial crisis.

Jagjit S. Chadha (Edited by), Sean Holly (Edited by)

9781107014732, Cambridge University Press

Hardback, published 27 October 2011

292 pages, 55 b/w illus. 20 tables
23.5 x 15.7 x 1.9 cm, 0.59 kg

'This is an excellent first installment in a series of books that examines the implications of the financial crisis for the field of macroeconomics. The various chapters, written by a blend of top academics and central bank economists who are in the frontline, cover both the theory and the practice of how monetary policy ought to respond to financial crises.' Frank Smets, Director General of the Directorate General Research, European Central Bank

Many of the assumptions that underpin mainstream macroeconomic models have been challenged as a result of the traumatic events of the recent financial crisis. Thus, until recently, it was widely agreed that although the stock of money had a role to play, in practice it could be ignored as long as we used short-term nominal interest rates as the instrument of policy because money and other credit markets would clear at the given policy rate. However, very early on in the financial crisis interest rates effectively hit zero percent and so central banks had to resort to a wholly new set of largely untested instruments to restore order, including quantitative easing and the purchase of toxic financial assets. This book brings together contributions from economists working in academia, financial markets and central banks to assess the effectiveness of these policy instruments and explore what lessons have so far been learned.

1. New instruments of monetary policy Jagjit S. Chadha and Sean Holly
2. Liquidity and monetary policy Douglas Gale
3. Interest rate policies and the stability of banking systems Hans Gersbach and Jan Wenzelberger
4. Handling liquidity shocks: QE and Tobin's q Marcus Miller and John Driffill
5. Asset purchase policies and portfolio effects: a DSGE analysis Richard Harrison
6. Financial intermediaries in an estimated DSGE model for the UK Stefania Villa and Jing Yang
7. Unconventional monetary policy, central bank balance sheets and long term forward rates Sharon Kozicki, Eric Santor and Lena Suchanek
8. Non-standard monetary policy measures and monetary developments Domenico Giannone, Michele Lenza, Huw Pill and Lucrezia Reichlin
9. Quantitative easing: one year on Spencer Dale
10. What saved the banks: unconventional monetary or fiscal policy? Mike Wickens
11. Non-conventional monetary policies: three views from the DSGE literature Evren Caglar, Jack Meaning, Alex Waters, James Warren and Jagjit Chadha.

Subject Areas: Banking [KFFK], Monetary economics [KCBM], Macroeconomics [KCB]