Optimal Macroprudential Policy

Junichi Fujimoto, Ko Munakata, Koji Nakamura and Yuki Teranishi
Additional contact information
Ko Munakata: Bank of Japan
Koji Nakamura: Bank of Japan

No 30, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: This paper introduces financial market frictions into a standard New Keynesian model through search and matching in the credit market. Under such financial mar- ket frictions, a second-order approximation of social welfare includes a term involv- ing credit, in addition to terms for inflation and consumption. As a consequence, the optimal monetary and macroprudential policies must contribute to both finan- cial and price stability. This result holds for various approximated welfares that can change corresponding to macroprudential policy variables. The key features of opti- mal policies are as follows. The optimal monetary policy requires keeping the credit market countercyclical against the real economy. Commitment in monetary and macro- prudential policy, rather than approximated welfare, justifies history dependence and pre-emptiveness. Appropriate combinations of macroprudential and monetary policy achieve perfect financial and price stability.

Keywords: optimal macroprudential policy; optimal monetary policy; financial market friction (search for similar items in EconPapers)
JEL-codes: E44 E52 E61 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-09
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.price.e.u-tokyo.ac.jp/img/researchdata/pdf/p_wp048.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://www.price.e.u-tokyo.ac.jp/img/researchdata/pdf/p_wp048.pdf [302 Moved Temporarily]--> https://www.price.e.u-tokyo.ac.jp/img/researchdata/pdf/p_wp048.pdf)

Related works:
Working Paper: Optimal Macroprudential Policy (2013)
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:upd:utppwp:030

Access Statistics for this paper

More papers in UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics University of Tokyo 702 Faculty of Economics, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan. Contact information at EDIRC.
Bibliographic data for series maintained by Yayoi Hatano ().