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Macro-Prudential Policy and the Conduct of Monetary Policy

Denis Beau, Christophe Cahn (), Laurent Clerc () and Benoit Mojon ()

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: In this paper, we analyse the interactions between monetary and macro-prudential policies and the circumstances under which such interactions call for their coordinated implementation. We start with a review of the interdependencies between monetary and macro-prudential policies. Then, we use a DSGE model incorporating financial frictions, heterogeneous agents and housing, which is estimated for the euro area over the period 1985 -2010, to identify the circumstances under which monetary and macro-prudential policies may have compounding, neutral or conflicting impacts on price stability. We compare inflation dynamics across four “policy regimes” depending on: (a) the monetary policy objectives – that is, whether the policy instrument, the short-term interest rate factors in financial stability considerations by leaning against credit growth; and (b) the existence, or not, of an authority in charge of a financial stability objective through the implementation of macroprudential policies that can “lean against credit” without affecting the short-term interest rate. Our main result is that under most circumstances, macro-prudential policies have either a limited or a stabilizing effect on inflation.

Date: 2013-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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Related works:
Chapter: Macro-Prudential Policy and the Conduct of Monetary Policy (2014) Downloads
Working Paper: Macro-Prudential Policy and the Conduct of Monetary Policy (2012) Downloads
Working Paper: Macro-prudential policy and the conduct of monetary policy (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:715

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