Monetary and Macroprudential Policies in a Leveraged Economy

Sylvain Leduc and Jean-Marc Natal

Economic Journal, 2018, vol. 128, issue 609, 797-826

Abstract: We examine the optimal monetary policy in the presence of endogenous feedback loops between asset prices and economic activity when macroprudential policies can also be pursued. Absent macroprudential policies, the optimal monetary policy leans against asset prices and can be closely approximated, using a speed†limit rule that responds to the growth of financial variables. An endogenous feedback loop is crucial for this result: price stability is otherwise quasi†optimal. Similarly, a simple macroprudential rule that links reserve requirements to credit growth dampens the endogenous feedback loop and leads to near price stability. State†contingent taxes on lending are shown to be welfare†improving.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://doi.org/10.1111/ecoj.12452

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:econjl:v:128:y:2018:i:609:p:797-826

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1468-0297

Access Statistics for this article

Economic Journal is currently edited by Estelle Cantillon, Martin Cripps, Andrea Galeotti, Morten Ravn, Kjell G. Salvanes, Frederic Vermeulen, Hans-Joachim Voth and Rachel Kranton

More articles in Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().