Monetary and Macroprudential Policy and Welfare in an Estimated Four-Agent New Keynesian Model

George J. Bratsiotis and Kasun D. Pathirage

Economics Discussion Paper Series from Economics, The University of Manchester

Abstract: We examine the social and agent-specific welfare effects of monetary and macroprudential policy in a four-agent estimated macroeconomic model, consisting of 'banked simple households', 'underbanked simple households', 'firm owners', and 'bank owners'. Optimal capital requirement and loan loss provisions ratios, are shown to improve all agent-specific and social welfare, but imply smaller gains for simple households and firm owners that rely on credit. Countercyclical capital buffers support firm owners and bank owners, with smaller gains for the two simple households. Countercyclical loan loss provisions improve social welfare only for specific shocks and benefit the 'simple underbanked household' and 'firm-owners' at the expense of 'bank-owners' and 'banked simple households'. Coordination between monetary and macroprudential policies yields higher social welfare than no coordination.

Keywords: monetary policy; macroprudential policy; financial frictions; risk of default; welfare (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 E52 E58 G28 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:man:sespap:2304

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