On the limits of macroprudential policy

Marcin Kolasa

No 2016-002, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: This paper studies how macroprudential policy tools can complement the interest rate-based 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 suffciently small. Any of these three dual stabilization objectives can be achieved with the monetary-fiscal policy mix. The identifed 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)
Pages: 33 pages
Date: 2016-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://hdl.handle.net/20.500.12182/1086 (application/pdf)

Related works:
Journal Article: On the Limits of Macroprudential Policy (2021)
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:sgh:kaewps:2016002

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