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Taming macroeconomic instability: monetary and macoprudential policy interactions in an agent - based model

Mauro Napoletano (), Lilit Popoyan and Andrea Roventini
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Lilit Popoyan: Laboratory of Economics and Management

Sciences Po publications from Sciences Po

Abstract: We develop an agent-based model to study the macroeconomic impact of alternative macro-prudential regulations and their possible interactions with different monetary policy rules. The aim is to shed light on the most appropriate policy mix to achieve the resilience of the banking sector and foster macroeconomic stability. Simulation results show that a triple-mandate Taylor rule,focused onoutput gap, inflationand credit growth, and a BaselIII prudential regulationis the bestpolicymix to improve the stability ofthe banking sector and smooth output fluctuations. Moreover, we consider the different levers of Basel III and their combinations. We find that minimum capital requirements and counter-cyclical capital buffers allow to achieve results close to the Basel III first-best with a much more simplified regulatory framework. Finally, the components of Basel III are non-additive: the inclusion of an additional lever does not always improve the performance of the macro-prudential regulation.

Keywords: Macro-prudential policy; Basel III regulation; Financial stability; Monetary policy; Agent based computational economics (search for similar items in EconPapers)
JEL-codes: C63 E52 E6 G1 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cfn, nep-cmp, nep-mac and nep-mon
Date: 2017-02
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Published in Journal of Economic Behavior and Organization, 2017, pp.117-140

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Related works:
Journal Article: Taming macroeconomic instability: Monetary and macro-prudential policy interactions in an agent-based model (2017) Downloads
Working Paper: Taming macroeconomic instability: monetary and macro prudential policy interactions in an agent-based model (2015) Downloads
Working Paper: Taming macroeconomic instability: Monetary and macro prudential policy interactions in an agent-based model (2015) Downloads
Working Paper: Taming Macroeconomic Instability: Monetary and Macro Prudential Policy Interactions in an Agent-Based Model (2015) Downloads
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