Macro-Prudential Policy and the Conduct of Monetary Policy

Denis Beau, Christophe Cahn, Laurent Clerc and Benoit Mojon

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: In this paper, we analyse the interactions between monetary and macro-prudential policies and the circumstances under which such interactions call for their coordinated implementation. We start with a review of the interdependencies between monetary and macro-prudential policies. Then, we use a DSGE model incorporating financial frictions, heterogeneous agents and housing, which is estimated for the euro area over the period 1985 -2010, to identify the circumstances under which monetary and macro-prudential policies may have compounding, neutral or conflicting impacts on price stability. We compare inflation dynamics across four “policy regimes” depending on: (a) the monetary policy objectives – that is, whether the policy instrument, the short-term interest rate factors in financial stability considerations by leaning against credit growth; and (b) the existence, or not, of an authority in charge of a financial stability objective through the implementation of macroprudential policies that can “lean against credit” without affecting the short-term interest rate. Our main result is that under most circumstances, macro-prudential policies have either a limited or a stabilizing effect on inflation.

Date: 2013-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (19)

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Related works:
Chapter: Macro-Prudential Policy and the Conduct of Monetary Policy (2014)
Working Paper: Macro-Prudential Policy and the Conduct of Monetary Policy (2012)
Working Paper: Macro-prudential policy and the conduct of monetary policy (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:715

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