We consider the optimality of various institutional arrangements for agencies that conduct macro-prudential regulation and monetary policy. When a central bank is in charge of price and financial stability, a new time inconsistency problem may arise. Ex-ante, the central bank chooses the socially optimal level of inflation. Ex-post, however, the central bank chooses inflation above the social o...

This paper analyzes the use of announcements of objectives or intentions, announcements which are common in implementation of monetary policy. To analyze such announcements, this paper uses a model in which there is asymmetric information over the central bank’s objectives. This informational asymmetry is represented by a stochastic in‡ation target, upon which only the central bank can conditio...

Financial system of B&H is “bank dominated”, which means that banks (credit institution) is dominated financial institutions in the financial system. Banks have major role in financial intermediation process between deficit and surplus money unites. Having on mind specific features of financial systems in Bosnia and Herzegovina it’s important to analyses characteristics each segment of fi...

Why do firms and banks hold foreign currency denominated liabilities? In this paper, we argue that foreign currency debt, by altering the effect of a devaluation on output, has a disciplining effect when the Central Bank’s objectives differ from the social optimum. However, under imperfect information, bad priors about the Central Bank induce excess dollarization of liabilities, which in turn l...

Since 2008, the central banks of advanced countries have borrowed trillions of dollars from their commercial banks in the form of reserves and invested the proceeds in portfolios of risky assets. They are paying interest on those reserves. We investigate how this new style of central banking affects central banks’ solvency. We find that a central bank that pays dividends equal to net income wil...

in this paper, based on a new keynesian structure, we have analyzed monetary policy response to exchange rate volatilities in iran. for this purpose, first, exchange rate derived from equilibrium condition in exchange market and then two different models have been estimated. assumption on the first model is that central bank responses to exchange rate volatilities and the assumption on the seco...