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Monetary policy, macroprudential policy and financial stability

Author

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  • Laeven, Luc
  • Maddaloni, Angela
  • Mendicino, Caterina

Abstract

Recent research developed under the ECB research task force on Monetary Policy, Macroprudential Policy and Financial Stability highlights the existence of trade-offs and spillovers that monetary policy and macroprudential authorities face when deciding on their policy interventions. Monetary policy measures are key to support the supply of credit to the economy, but they could also have unintended consequences on financial stability risks. Macroprudential policies are instead effective in limiting financial stability risks, but they could also reduce the length of economic expansions by preventing credit from flowing to productive economic activities. In addition, since monetary and macroprudential policies transmit to the broad economy via the financial system, they unavoidably affect each other’s effectiveness. Taking these factors into account is key for the design and implementation of both policies. JEL Classification: E3, E44, G01, G21

Suggested Citation

  • Laeven, Luc & Maddaloni, Angela & Mendicino, Caterina, 2022. "Monetary policy, macroprudential policy and financial stability," Working Paper Series 2647, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20222647
    Note: 261593
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2647~0a0b3030e1.en.pdf
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    References listed on IDEAS

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    1. Durrani, Agha & Metzler, Julian & Michail, Nektarios & Werner, Johannes Gabriel, 2022. "Bank lending rates and the remuneration for risk: evidence from portfolio and loan level data," Working Paper Series 2753, European Central Bank.

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    More about this item

    Keywords

    financial frictions; policy trade-offs; risk taking; systemic risk;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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