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SUMMARY:Financial intermediaries in the theory of money - Sannikov\, Y (Pr
 inceton University)
DTSTART:20141217T100000Z
DTEND:20141217T104500Z
UID:TALK56670@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:Co-author: Markus BRUNNERMEIER (Princeton) \n\nA theory of mon
 ey needs a proper place for financial intermediaries. Intermediaries creat
 e inside money and their ability to take risks determines the money multip
 lier. In downturns\, intermediaries shrink their lending activity and re-s
 ell their assets. Moreover\, they create less inside money. As the money m
 ultiplier shrinks\, the value of money rises. This leads to a Fisher disin
 flation that hurts intermediaries and all other borrowers. The initial sho
 ck is amplified\, volatility spikes up and risk premia rise. An accommodat
 ive monetary policy in downturns\, focused on the assets held by constrain
 ed agents\, recapitalizes intermediaries and hence mitigates these destabi
 lizing adverse feedback effects. A monetary policy rule that accommodates 
 negative shocks and tightens after positive shocks\, provides an ex-ante i
 nsurance\, mitigates financial frictions\, reduces endogenous risk and ris
 k premia but it also creates moral hazard.\n
LOCATION:Seminar Room 1\, Newton Institute
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