Monetary Policy in a Financial Crisis

What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under what conditions will a cut have the opposite e ffects? We answer these questions in a general class of open economy models, where a financial crisis is modeled as a time when collateral constraints are suddenly binding. We find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy, then a cut in the interest rate is most likely to result in a welfare-reducing fall in output and employment. When these frictions are absent, a cut in the interest rate improves asset positions and promotes a welfare-increasing economic expansion.

Monetary policy in a financial crisis

What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under which will it have the opposite effects? The authors answer these questions in a general class of open-economy models, modeling a financial crisis as a time when collateral constraints are suddenly binding. They find that when there are frictions in adjusting the level of output in the traded goods sector and the rate at which that output can be used in other parts of the economy, a cut in the interest rate is most likely to result in a welfare-reducing drop in output and employment. When these frictions are absent, a cut in the interest rate improves asset positions and promotes a welfare-increasing economic expansion.Financial crises ; Monetary policy ; Interest rates

Optimal Monetary Policy in a 'Sudden Stop'

In the wake of the 1997-98 financial crises, interest rates in Asia were raised immediately, and then reduced sharply. We describe an environment in which this is the optimal monetary policy. The optimality of the immediate rise in the interest rate is an example of the theory of the second best: although high interest rates introduce an inefficiency wedge into the labor market, they are nevertheless welfare improving because they mitigate distortions due to binding collateral constraints. Over time, as various real frictions wear off and the collateral constraint is less binding, the familiar Friedman forces dominate, and interest rates are optimally set as low as possible.

Monetary policy in a financial crisis

What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under what conditions will a cut have the opposite effects? We answer these questions in a general class of open economy models, where a financial crisis is modeled as a time when collateral constraints are suddenly binding. We find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy, then a cut in the interest rate is most likely to result in a welfare-reducing fall in output and employment. When these frictions are absent, a cut in the interest rate improves asset positions and promotes a welfare-increasing economic expansion.Monetary policy ; Financial crises

Monetary Policy in an International Financial Crisis

We explore the role of monetary policy in the aftermath of a financial crisis. We develop a small open economy model with limited participation of households in a financial intermediary that provides liquidity to satisfy firms' working capital needs. Firms require two forms of working capital: domestic funds to pay for the wage bill and foreign funds to finance imports of intermediate goods. A shortage of either one of the sources of working capital acts as a drag on economic activity. In normal times, an interest rate cut is expansionary. In a financial crisis, collateral constraints bind and an expansion of domestic liquidity leads to a real exchange rate depreciation that further tightens the collateral constraint and offsets the traditional (expansionary) liquidity channel. In addition, the tightening of the collateral constraint places a premium on paying off foreign debt, reinforcing the contractionary effects of an interest rate cut. We study the conditions under which such monetary policy action is contractionary and relate them to recent emerging market crises.

Using Economic Evaluation to Hasten Health Equity

Achieving health equity has proven elusive for two reasons. First, most research has focused on changing the behavior of individuals; however, policies that address socioeconomic factors or change the context to facilitate healthy decisions tend to be more effective. Second, health disparity science and evidence are not consistently used to guide policymakers, even those seeking health equity. In this perspective, we discuss economic evaluation tools that researchers can use to assist decision-makers in conducting research or evaluating policy: self-reported health-related quality-of-life surveys and cost–benefit analysis evaluations informed with the willingness to pay for research and analyses

The 2012 Economic Burden of Intimate Partner Violence (IPV) in Ecuador: Setting the Agenda for Future Research and Violence Prevention policies

Introduction: Intimate partner violence (IPV) is a widespread social structural problem that affects a great proportion of Ecuadorian women. IPV is a sexually, psychologically, or physically coercive act against an adult or adolescent woman by a current or former intimate partner. Not-for-profit groups in Ecuador report that 70% of women experience 1 of the forms of IPV sometime during their lifetime, but population-based surveys suggest that 41% of Ecuadorian women are exposed to emotional violence, 31% physical violence, and 12% sexual violence by their spouse or partner over their lifetime. Despite the high prevalence, the response of the Ecuadorian government has been insufficient to reduce the number of victims and to provide adequate legal and health services for the prevention and treatment of IPV. Given the power of economic data to influence policy making, the goal of this study is to produce the first estimate of the economic impact of IPV in Ecuador and to identify the policy paths in which these estimates would have the greatest impact for Ecuador. Methods: Using a bottom-up method for estimating the economic burden of IPV and a national prevalence of IPV based on a population-based survey in the 2003–2004 year, the total economic burden is estimated at approximately $109 million adjusted to the 2012 United States (U.S.) currency rate. Results: Based on a prevalence of 255,267 women who were victims of IPV in the 2003–2004 year, the total economic burden is estimated at approximately$109 million adjusted to the 2012 the U.S. currency rate. The largest cost category contributing to the economic burden was the costs of healthcare services to treat injuries associated with IPV events. Conclusion: The asymmetry between the economic burden of IPV and the amount of government resources devoted to IPV prevention efforts suggests the need for a greater role to be played by the government and other factors in society in the area of IPV prevention