A Primer on Macroprudential Policy

Jean-Christophe Poutineau and Gauthier Vermandel

The Journal of Economic Education, 2015, vol. 46, issue 1, 68-82

Abstract: This article introduces macroprudential policy using a static New Keynesian Macroeconomics model with financial frictions. The authors analyze two related questions: First, they show how the procyclicality of financial factors, captured by the financial accelerator, amplifies the transmission of supply and demand shocks and impacts the intuition they get from a basic intermediate macroeconomics. Second, adopting an optimal policy perspective, they show how a policymaker may use macroprudential policy to complete monetary policy measures. Following the Mundellian Policy Assignment principle , macroprudential policy should be specialized to address the procyclicality problem to suppress welfare losses associated with the building of financial imbalances, thus helping monetary policy to concentrate on the output inflation tradeoff.

Date: 2015
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DOI: 10.1080/00220485.2014.980527

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