The Optimal Monetary Instrument for Prudential Purposes

Goodhart, Charles, Sunirand, Pojanart and Tsomocos, Dimitrios (2011) The Optimal Monetary Instrument for Prudential Purposes. Journal of Financial Stability, 7 (2). pp. 70-77.


The purpose of this paper is to assess the choice between adopting a monetary base or an interest rate setting instrument to maintain financial stability. Our results suggest that the interest rate instrument is preferable, since during times of a panic or financial crisis the Central Bank automatically satisfies the increased demand for money. Thus, it prevents sharp losses in asset values and enhanced asset volatility.

Item Type: Article
Keywords: Interest rates, Monetary base, Bank capital, Financial stability, Monetary policy Interest rates; Monetary base; Bank capital; Financial stability; Monetary policy
Subject(s): Finance
Centre: Faculty of Finance
Date Deposited: 25 Jan 2012 19:06
Last Modified: 23 Oct 2015 14:06

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