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Macroprudential and monetary policies to deal with inequality

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  • Coccia, Samantha
  • Gallegati, Mauro
  • Russo, Alberto

Abstract

This paper examines the impact of macro prudential policies on financial stability and inequality, focusing on the effects of debt service-to-income (DTI) ratio reductions and on its coordination with a conventional monetary policy. Using a macroeconomic simulation model, we find that reducing DTI threshold bring about a decrease in both households indebtedness and non-performing loans (NPLs), while causing economic contraction, and worsening inequality by restricting access to credit for lower-income households. Our findings suggest that while macro prudential policy (lower DTI) alone is able to grant more financial stability at the cost of greater inequality, a combination with expansionary monetary policies can reduce these disparities while ensuring financial stability.

Suggested Citation

  • Coccia, Samantha & Gallegati, Mauro & Russo, Alberto, 2025. "Macroprudential and monetary policies to deal with inequality," Structural Change and Economic Dynamics, Elsevier, vol. 75(C), pages 895-912.
    • Handle: RePEc:eee:streco:v:75:y:2025:i:c:p:895-912
    DOI: 10.1016/j.strueco.2025.11.001
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