This paper examines the role of financial instability in setting monetary policy. The paper begins with a model that examines the interaction of monetary and regulatory policy. It then empirically tests whether financial instability has affected monetary policy. One important innovation is to...

Focusing on localized measures of bank health and economic activity, and renters as well as homeowners, this paper uses an innovative approach to identifying households likely in need of credit to investigate the effect on household spending of a deterioration in local-bank health. The analysis...

We investigate the misallocation of credit in Japan associated with banks' evergreening loans, distinguishing between two types of firm distress: (perhaps temporary) financial distress and technical distress, which reflects weak operational capabilities, as indicated by low total factor...