Targeting financial stability: macroprudential or monetary policy?

David Aikman (), Julia Giese, Sujit Kapadia and Michael McLeay

No 2278, Working Paper Series from European Central Bank

Abstract: This paper explores monetary-macroprudential policy interactions in a simple, calibrated New Keynesian model incorporating the possibility of a credit boom precipitating a financial crisis and a loss function reflecting financial stability considerations. Deploying the countercyclical capital buffer (CCyB) improves outcomes significantly relative to when interest rates are the only instrument. The instruments are typically substitutes, with monetary policy loosening when the CCyB tightens. We also examine when the instruments are complements and assess how different shocks, the effective lower bound for monetary policy, market-based finance and a risk-taking channel of monetary policy affect our results. JEL Classification: E52, E58, G01, G28

Keywords: countercyclical capital buffer; credit boom; financial crises; financial stability; macroprudential policy; monetary policy (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-rmg
Note: 700532
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2278~a3eb7fea61.en.pdf (application/pdf)

Related works:
Journal Article: Targeting Financial Stability: Macroprudential or Monetary Policy? (2023)
Working Paper: Targeting financial stability: macroprudential or monetary policy? (2018)
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:ecb:ecbwps:20192278

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().