FINANCIAL STABILITY AND UNCONVENTIONAL POLICIES

Abstract

This thesis explores the relation between fiancial stability and macroeconomic policy. The first chapter tackles the topic of financial stability from the point of wiev of a the single bank. In that model banks take explicitly into account the probability of default of their counterparties on the interbank market. In this way, an endogenous constraint to the credit supply is defined. That constraint evolves along the business cycle. I show that monetary policy alone is not able to ease credit conditions during a crisis. The second chapter nests a complex network model inside a state-of-the-art DSGE model. Using the tools of network analysis it is possible to trace how contagion spreads between banks (i.e. what is the likelihood that the default of one bank spreds to other banks, how many institution are affected) and how its probability avolves following exogenous shocks. With this tool I test partial equilibrium macropolicy tools (i.e. direct lendings to banks) and the effectiveness of monetary policy during crisis. Finally, in the last chapter I analyze, with high frequency data, the impact of conventional and unconventional monetary policy surprises, finding that the response of markets to menetary policy increased over time.