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Capital controls, macroprudential measures and monetary policy interactions in an emerging economy

Valerio Nispi Landi ()

No 1154, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Are capital controls and macroprudential measures desirable in an emerging economy? How do these instruments interact with monetary policy? I address these questions in a DSGE model for an emerging economy whose banks are indebted in foreign currency. The model is augmented with financial frictions. The main results are as follows. First, capital controls and macroprudential policies are able to mitigate the adverse effects of an increase in the foreign interest rate. Second the desirability of these measures is shock dependent. Third, capital controls and monetary policy are complementary in addressing the trade-off between inflation and financial fluctuations.

Keywords: financial markets; monetary policy; small open economy (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2017-12
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1154_17

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