Monetary and macroprudential policies
Paolo Angelini (),
Stefano Neri () and
Fabio Panetta ()
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Fabio Panetta: Banca d'Italia
No 801, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area
We use a dynamic general equilibrium model featuring a banking sector to assess the interaction between macroprudential policy and monetary policy. We find that in "normal" times (when the economic cycle is driven by supply shocks) macroprudential policy generates only modest benefits for macroeconomic stability over a "monetary-policy-only" world. And lack of cooperation between the macroprudential authority and the central bank may even result in conflicting policies, hence suboptimal results. The benefits of introducing macroprudential policy tend to be sizeable when financial or housing market shocks, which affect the supply of loans, are important drivers of economic dynamics. In these cases a cooperative central bank will "lend a hand" to the macroprudential authority, working for broader objectives than just price stability in order to improve overall economic stability.
Keywords: macroprudential policy; monetary policy; capital requirements (search for similar items in EconPapers)
JEL-codes: E44 E58 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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Working Paper: Monetary and macroprudential policies (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_801_11
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