Potential Gains from Cooperation Between Monetary and Macroprudential Policies: The Case of an Emerging Economy
Eastern European Economics, 2017, vol. 55, issue 5, 420-452
This article investigates whether cooperation between monetary and macroprudential policies can better stabilize an emerging economy. In this respect, it uses a dynamic stochastic general equilibrium model estimated for the Romanian economy. The model specifies two macroprudential instruments: the loan-to-value ratio and the capital requirements ratio. The simulations revealed that, given the entire stochastic environment, macroprudential instruments can indeed help stabilize the economy with smaller costs, and the loan-to-value instrument qualified as the best approach. Furthermore, in case of a financial shock, the use of credit requirements may be desirable because of their neutral effect on the exchange rate.
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