We derive an optimal state-contingent inflation target in an economy under uncertainty. This inflation target can improve inefficiencies stemming from two sources: the lack of commitment to predetermined policies and the lack of coordination between the monetary and fiscal authorities. We then...

This paper examines the economic impact of the collateral and the bank lending channels simultaneously by taking advantage of exogenous shocks to a firm’s tangible assets and a bank’s net worth caused by the massive Tohoku earthquake in 2011. We obtain the following findings: (1) damages to...