How Complementary Are Prudential Regulation and Monetary Policy?

Otaviano Canuto

World Bank - Economic Premise, 2011, issue 60, 1-7

Abstract: Could either monetary policy or financial prudential regulation be relied on individually to mitigate asset price cycles or their effects? If both ways are effective, monetary policy and prudential regulation could then be considered “substitutes,” in the sense that the individual use of either instrument leads to a reduction in the volatility of both corresponding targets. This note, however, argues in favor of complementarity—rather than substitution—in the use of monetary and macroprudential policies: the combined (articulate) use of both policies tends to be more effective than a standalone implementation of either.

Keywords: monetary policy; financial regualtion; prudential regulation; asset price; cycles; financial crisis; volatility; complementarity; macroeconomics; Banks (search for similar items in EconPapers)
JEL-codes: E5 E52 E58 E6 F42 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: How Complementary Are Prudential Regulation and Monetary Policy? (2011)
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