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Monetary and macroprudential policies in an estimated model with financial intermediation

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  • Gelain, Paolo
  • Ilbas, Pelin

Abstract

We estimate the Smets–Wouters model featuring the Gertler–Karadi banking sector on US data using real and financial observables. We investigate the gains from coordination between a flexible inflation targeting central bank and a macroprudential regulator charged with safeguarding financial stability. The potential gains from coordination depend on how much importance is given to the output gap in the macroprudential mandate. Coordination conflicts can be avoided by assigning similar importance to this common objective in the respective mandates of both policies. When we derive optimal mandates for monetary and macroprudential policy under no-coordination, we find that both policy makers should place a higher weight than society on the output gap.

Suggested Citation

  • Gelain, Paolo & Ilbas, Pelin, 2017. "Monetary and macroprudential policies in an estimated model with financial intermediation," Journal of Economic Dynamics and Control, Elsevier, vol. 78(C), pages 164-189.
    • Handle: RePEc:eee:dyncon:v:78:y:2017:i:c:p:164-189
    DOI: 10.1016/j.jedc.2017.01.010
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    More about this item

    Keywords

    Monetary policy; Macroprudential policy; Policy coordination; Financial frictions;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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