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The optimal monetary instrument for prudential purposes

Goodhart, Charles, Sunirand, P. and Tsomocos, D. P. (2009) The optimal monetary instrument for prudential purposes. Journal of Financial Stability, 7 (2). pp. 70-77. ISSN 1572-3089

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Abstract

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
Official URL: http://www.sciencedirect.com/science/journal/15723...
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Research centres and groups > Financial Markets Group (FMG)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 06 Apr 2011 15:12
URL: http://eprints.lse.ac.uk/30264/

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