Essays on Monetary Policy and Financial Stability

Abstract

If we want to understand the most severe macroeconomic disruptions, we must understand the causes of financial instability. Despite their devastating economic and social consequences, financial crises have been recurring phenomena in market economies throughout history. Preventing deep and persistent macroeconomic losses and mitigating the broader social damage they cause (Sufi and Taylor, 2022) requires a thorough understanding of why financial crises occur and what policies can effectively prevent them. <br /> These questions came to the core of research and the policy debate following the Global Financial Crises of 2008 (Caballero, 2010). The post-2008 research agenda has provided valuable insights into the buildup, triggers, aftermath, and broader lessons of financial crises (Sufi and Taylor, 2022). However, one critical aspect remains underexplored: the connection between monetary policy and financial instability. This Dissertation brings monetary policy to the core of the financial instability debate. By employing a combination of empirical and theoretical tools and leveraging newly collected long-run data, I investigate how monetary policy contributes to creating the conditions that lead to financial instability.