Benefits of macro-prudential policy in low interest rate environments

Alejandro Van der Ghote

No 2498, Working Paper Series from European Central Bank

Abstract: I study macro-prudential policy intervention in economies with secularly low interest rates. Intervention boosts risk-free real interest rates unintentionally, simply as a by-product of containing systemic risk in financial markets. Thus, intervention also boosts the natural rate of return in particular (i.e., the equilibrium risk-free rate that is consistent with inflation on target and production at full capacity). These results point to a novel complementarity between financial stability and macroeconomic stabilization. Complementary is sufficiently strong to generate a divine coincidence if the natural rate is secularly low, but not too low. JEL Classification: E31, E32, E44

Keywords: macro-prudential policy; natural rate of return; systemic risk (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-fdg, nep-mac, nep-mon and nep-rmg
Note: 2828013
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202498

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