On the limits of macroprudential policy
Marcin Kolasa ()
No 236, NBP Working Papers from Narodowy Bank Polski, Economic Research Department
This paper studies how macroprudential policy tools can complement the interest ratebased monetary policy in achieving a selection of dual stabilization objectives. We show analytically in a canonical New Keynesian model with collateral constraints that using the loan-to-value ratio as an additional policy instrument does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and either credit or house prices with monetary and macroprudential policy is possible only if the role of credit in the economy is sufficiently small. Any of these three dual stabilization objectives can be achieved with the monetary-fiscal policy mix. The identified limits to the LTV ratio-based policy are related to its predominantly intertemporal effect on decisions made by financially constrained agents.
Keywords: macroprudential policy; monetary policy; stabilization tradeoffs (search for similar items in EconPapers)
JEL-codes: E32 E58 E63 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Working Paper: On the limits of macroprudential policy (2016)
Working Paper: On the Limits of Macroprudential Policy (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:236
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