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Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area

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  • Pau Rabanal

    (IMF)

  • Dominic Quint

    (Free University Berlin)

Abstract

In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policies can play a role. We find that the introduction of a macroprudential rule would help in reducing macroeconomic volatility, improve welfare, and partially substitute for the lack of national monetary policies. Macroprudential policies always increase the welfare of savers, but their effects on borrowers depend on the shock that hits the economy. In particular, macroprudential policies may entail welfare costs for borrowers under technology shocks, by increasing the countercyclical behavior of lending spreads.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 604.

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Date of creation: 2013
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Handle: RePEc:red:sed013:604

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Cited by:
  1. F. Gulcin Ozkan & D. Filiz Unsal, 2014. "On the use of Monetary and Macroprudential Policies for Small Open Economies," IMF Working Papers 14/112, International Monetary Fund.
  2. Christopher Otrok & Gianluca Benigno & Huigang Chen & Alessandro Rebucci & Eric R. Young, 2012. "Monetary and Macro-Prudential Policies: An Integrated Analysis," Working Papers 1208, Department of Economics, University of Missouri.
  3. Malikane, Christopher & Ojah, Kalu, 2014. "Fisher's Relation and the Term Structure: Implications for IS Curves," MPRA Paper 55553, University Library of Munich, Germany.
  4. Paolo Angelini & Sergio Nicoletti-Altimari & Ignazio Visco, 2012. "Macroprudential, microprudential and monetary policies: conflicts, complementarities and trade-offs," Questioni di Economia e Finanza (Occasional Papers) 140, Bank of Italy, Economic Research and International Relations Area.
  5. Crowe, Christopher & Dell’Ariccia, Giovanni & Igan, Deniz & Rabanal, Pau, 2013. "How to deal with real estate booms: Lessons from country experiences," Journal of Financial Stability, Elsevier, vol. 9(3), pages 300-319.
  6. Ko Munakata & Koji Nakamura & Yuki Teranishi, 2013. "Optimal Macroprudential Policy," CAMA Working Papers 2013-51, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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