Monetary And Macroprudential Policy Rules In A Model With House Price Booms
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Monetary and Macroprudential Policy Rules in a Model with House Price Booms
Author: Mr.Pau Rabanal
language: en
Publisher: International Monetary Fund
Release Date: 2009-11-01
We argue that a stronger emphasis on macrofinancial risk could provide stabilization benefits. Simulations results suggest that strong monetary reactions to accelerator mechanisms that push up credit growth and asset prices could help macroeconomic stability. In addition, using a macroprudential instrument designed specifically to dampen credit market cycles would also be useful. But invariant and rigid policy responses raise the risk of policy errors that could lower, not raise, macroeconomic stability. Hence, discretion would be required.
Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area
Author: Mr.Dominic Quint
language: en
Publisher: International Monetary Fund
Release Date: 2013-10-14
In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policy can play a role. We find that the introduction of a macroprudential rule would help in reducing macroeconomic volatility, improve welfare, and partially substitute for the lack of national monetary policies. Macroprudential policy would always increase the welfare of savers, but their effects on borrowers depend on the shock that hits the economy. In particular, macroprudential policy may entail welfare costs for borrowers under technology shocks, by increasing the countercyclical behavior of lending spreads.
The Interaction of Monetary and Macroprudential Policies
Author: International Monetary Fund. Monetary and Capital Markets Department
language: en
Publisher: International Monetary Fund
Release Date: 2012-12-29
The recent crisis showed that price stability does not guarantee macroeconomic stability. In several countries, dangerous financial imbalances developed under low inflation and small output gaps. To ensure macroeconomic stability, policy has to include financial stability as an additional objective. But a new objective demands new tools: macroprudential tools that can target specific sources of financial imbalances (something monetary policy is not well suited to do). Effective macroprudential policies (which include a range of constraints on leverage and the composition of balance sheets) could then contain risks ex ante and help build buffers to absorb shocks ex post.