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Monetary Policy Under Financial Turbulence: An Overview

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Executive Summary

The last financial crisis revealed that financial imperfections and institutions play a more important role than the literature has assigned them for a long time, and it is possible to ascertain strongly that in the coming years macroeconomic research will be dominated by the study of the relationships between financial frictions, financial systems and aggregate fluctuations. This paper conducts a selective review of existing literature on monetary policy and its interaction with financial variables. It then examines frontier research presented at the XIII Annual Conference of the Central Bank of Chile, which gathers new theoretical results and empirical evidence applicable both in developed countries and in the Chilean economy.

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