Monetary Analysis: Price and Financial Stability

Citation:

Brunnermeier, Markus K, and Yuliy Sannikov. “Monetary Analysis: Price and Financial Stability”. ECB Forum on Central Banking. Sintra, Portugal, 2014. Print.

Date Published:

26 May 2014

Abstract:

In a world with self-generated, endogenous risk and time-varying risk premia, price stability and financial stability are inseparable. A monetary analysis based on the distribution of liquidity mismatch across sectors provides valuable information about the build-up of vulnerabilities in tranquil times and helps to identify balance sheet impaired sectors in volatile times. When the monetary transmission mechanism becomes “sectorially impaired”, monetary policy action dis-proportionally favors issuers of government and large corporation debt over small and median enterprises (SMEs). Reviving a prudently designed asset backed securitization market for SME and consumer loans would alleviate this discrepancy and establish a pan European intermediation market.

Last updated on 09/25/2015