Implications of higher inflation and interest rates for macroprudential policy stance

Hannah S. Hempell, Fatima Silva, Valerio Scalone, Wanda Cornacchia, Domenica Di Virgilio, Spyros Palligkinis, Anatoli Segura Velez, Tamás Borkó, Aurélien Espic, Salomón Garcia, Marcel Heires, Luis Herrera (), Samu Kärkkäinen, Luke Kent, Stefan Kerbl, Sebastian Löhe, Vitor Oliveira and Paulina Steikūné

No 358, Occasional Paper Series from European Central Bank

Abstract: In recent years, monetary policy and inflation considerations have been playing an increasingly important role for macroprudential authorities in their policy setting. This paper aims to assess the implications of high inflation and rising interest rates for macroprudential policy stance. The conceptual discussions and model-based analyses included in this paper reflect on the appropriate direction and impact of macroprudential policies at the different stages of financial and business cycles, given cross-country and banking system heterogeneities. In this context, a key objective of the paper is to assess to what extent the interaction between macroprudential and monetary policies differs, given the heterogeneity across euro area countries exposed to a homogenous monetary policy. While both policies are to a large extent complementary, monetary policy may generate relevant spillovers due to its impact on the financial cycle and, potentially, on financial stability. The paper argues that the recent focus of macroprudential policy on resilience, when banking sector conditions ensure no unwarranted procyclical effects of macroprudential tightening, suggests an expansion of the notion of “complementarity” with monetary policy. Specifically, with the build-up of resilience, macroprudential policy acts de facto countercyclically, supporting monetary policy in its pursuit of price stability. In this regard, the paper stresses that the source of the inflationary shock (supply versus demand side) and the monetary environment primarily affect the intensity, speed and extent of buffer build-up or release within each stage of the financial cycle while affecting borrower-based measures in their bindingness. JEL Classification: E52, G21, G28

Keywords: banks; borrower-based measures; capital buffers; financial stability; macroprudential policy; monetary policy (search for similar items in EconPapers)
Date: 2024-10
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
Note: 1743488
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op358~56a32e9cd1.en.pdf (application/pdf)

Related works:
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:ecb:ecbops:2024358

Access Statistics for this paper

More papers in Occasional Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().