Monetary and macroprudential policies: trade-offs and interactions

Luc Laeven, Angela Maddaloni and Caterina Mendicino

Research Bulletin, 2022, vol. 92

Abstract: There are always trade-offs to weigh up when taking monetary and macroprudential policy actions. Thechoice is between supporting the economy by ensuring a smooth supply of credit at favourableconditions, on the one hand, and containing financial stability risks, on the other hand. There are alsosignificant spillovers between the two policies since they are both implemented and transmitted throughthe financial system. Monetary and macroprudential authorities need to take these interactions intoaccount when deciding on interventions. Indeed, there are clear advantages of accounting for financialstability considerations when taking monetary policy decisions and limiting the constraints on the practicalimplementation of macroprudential policy. JEL Classification: E31

Keywords: bank regulation; financial stability; macroprudential regulation; monetary policy; policy spillovers (search for similar items in EconPapers)
Date: 2022-02
Note: 261593
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