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Monetary and macroprudential policies under rules and discretion

Lien Laureys and Roland Meeks

Economics Letters, 2018, vol. 170, issue C, 104-108

Abstract: We study the policy design problem faced by central banks with both monetary and macroprudential objectives. We find that a time-consistent policy is preferred to a widely-studied class of simple monetary and macroprudential rules. When interest rates adjust to macroprudential policy in an augmented monetary policy rule, improved outcomes result. When policy authority is split between institutions, strategic interactions between discretionary policymakers can result in notably poor outcomes.

Keywords: Monetary policy; Macroprudential policy; DSGE models; Nash policy games (search for similar items in EconPapers)
JEL-codes: E44 E52 G28 (search for similar items in EconPapers)
Date: 2018
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