Interactions and Coordination between Monetary and Macroprudential Policies

Alejandro Van der Ghote

American Economic Journal: Macroeconomics, 2021, vol. 13, issue 1, 1-34

Abstract: I study monetary and macroprudential policy intervention in a general equilibrium economy with recurrent boom-bust cycles. Recurrence causes forward-looking variables to also react to policy intervention during phases in which the intervention is inactive. Macroprudential policies that contain systemic risk in financial markets during booms, therefore, relax market-based funding constraints during busts, which helps mitigate the severity and shorten the duration of economic meltdowns. Contractionary monetary interventions during booms also have (latent) beneficial effects during busts. Coordination between the two policy instruments improves social welfare over standard, noncoordinated policy interventions, but improvement is moderate.

JEL-codes: E32 E44 E52 E61 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (32)

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DOI: 10.1257/mac.20190139

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