Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area

Dominic Quint and Pau Rabanal

No 2013/209, IMF Working Papers from International Monetary Fund

Abstract: In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policy can play a role. We find that the introduction of a macroprudential rule would help in reducing macroeconomic volatility, improve welfare, and partially substitute for the lack of national monetary policies. Macroprudential policy would always increase the welfare of savers, but their effects on borrowers depend on the shock that hits the economy. In particular, macroprudential policy may entail welfare costs for borrowers under technology shocks, by increasing the countercyclical behavior of lending spreads.

Keywords: WP; Monetary Policy; EMU; Basel III; Financial Frictions; intermediate goods; credit market; utility function; monetary policy rule; technology shock; monetary policy shock; housing stock; depreciation rate; credit growth; optimal monetary policy; risk shock; labor disutility coefficient; Macroprudential policy; Credit; Housing; Consumption; Inflation (search for similar items in EconPapers)
Pages: 60
Date: 2013-10-14
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Citations: View citations in EconPapers (47)

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Related works:
Journal Article: Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area (2014)
Working Paper: Monetary and macroprudential policy in an estimated DSGE model of the Euro Area (2014)
Working Paper: Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area (2013)
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