Macroprudential rules and monetary policy when financial frictions matter

Jeannine Bailliu, Cesaire Meh and Yahong Zhang

Economic Modelling, 2015, vol. 50, issue C, 148-161

Abstract: This paper examines the interaction between monetary policy and macroprudential rules and whether policy makers should respond to financial imbalances. To address this issue, we build a dynamic general equilibrium model that features financial market frictions and financial shocks as well as standard macroeconomic shocks. We estimate the model using Canadian data. Based on these estimates, we show that it is beneficial to react to financial imbalances. The size of these benefits depends on the nature of the shock where the benefits are larger in the presence of financial shocks that have broader effects on the macroeconomy.

Keywords: Monetary policy; Price stability; Macroprudential rule; Financial stability; Financial market imperfections (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999315001595
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Macroprudential Rules and Monetary Policy when Financial Frictions Matter (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:50:y:2015:i:c:p:148-161

DOI: 10.1016/j.econmod.2015.06.012

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().