Studies on the role of asset prices and credit in the design of monetary and regulatory policy

The three chapters of this thesis look at the interaction of monetary and regulatory policy with financial markets. The first chapter analyses optimal monetary policy in the presence of liquidity constrained consumers, the proportion of which varies with house prices. In the second chapter, the hypothesis that expansionary monetary policy in response to a stock market crash might lead to excessive risk-taking by financial market participants is evaluated empirically. Finally, the last chapter provides a theoretical model to assess the impact of minimum bank capital requirements on the fluctuation of aggregate bank lending when banks hold different levels of capital over and above the required minimum.