IDEAS home Printed from https://ideas.repec.org/a/taf/macfem/v10y2017i3p215-259.html
   My bibliography  Save this article

Macroprudential policy transmission and interaction with fiscal and monetary policy in an emerging economy: a DSGE model for Brazil

Author

Listed:
  • Fabia A. Carvalho
  • Marcos R. Castro

Abstract

We investigate the transmission of macroprudential (MaP) instruments in a dynamic stochastic general equilibrium model where foreign capital flows interact with financial frictions and banks are exposed to different sources of credit default risk. The model is estimated for Brazil with Bayesian techniques. We compute optimal combinations of simple MaP, fiscal and monetary policy rules that can react to the business and/or the financial cycle. We find that the gains from implementing a cyclical fiscal policy are only significant if MaP policy countercyclically reacts to the financial cycle. Optimal fiscal policy is countercyclical in the business cycle.

Suggested Citation

  • Fabia A. Carvalho & Marcos R. Castro, 2017. "Macroprudential policy transmission and interaction with fiscal and monetary policy in an emerging economy: a DSGE model for Brazil," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 10(3), pages 215-259, September.
    • Handle: RePEc:taf:macfem:v:10:y:2017:i:3:p:215-259
    DOI: 10.1080/17520843.2016.1270982
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/17520843.2016.1270982
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/17520843.2016.1270982?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Schmitt-Grohe, Stephanie & Uribe, Martin, 2007. "Optimal simple and implementable monetary and fiscal rules," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1702-1725, September.
    2. Francis, William B. & Osborne, Matthew, 2012. "Capital requirements and bank behavior in the UK: Are there lessons for international capital standards?," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 803-816.
    3. Fabia Carvalho & Fabia A. de Carvalho & Silvio Michael de Azevedo Costa & Marcos Ribeiro de Castro, 2013. "Traditional and matter-of-fact financial frictions in a DSGE model for Brazil: the role of macroprudential instruments and monetary policy," EcoMod2013 5145, EcoMod.
    4. Lambertini, Luisa & Mendicino, Caterina & Teresa Punzi, Maria, 2013. "Leaning against boom–bust cycles in credit and housing prices," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1500-1522.
    5. Fabia A. de Carvalho & Marcos R. Castro, 2015. "Foreign Capital Flows, Credit Growth and Macroprudential Policy in a DSGE Model with Traditional and Matter-of-Fact Financial Frictions," Working Papers Series 387, Central Bank of Brazil, Research Department.
    6. Bank for International Settlements, 2016. "Experiences with the ex ante appraisal of macroprudential instruments," CGFS Papers, Bank for International Settlements, number 56, december.
    7. Fabia A. de Carvalho & Marcos R. de Castro, 2015. "Macroprudential and Monetary Policy Interaction: a Brazilian perspective," Working Papers Series 405, Central Bank of Brazil, Research Department.
    8. Roberto Motto & Massimo Rostagno & Lawrence J. Christiano, 2010. "Financial Factors in Economic Fluctuations," 2010 Meeting Papers 141, Society for Economic Dynamics.
    9. Kannan Prakash & Rabanal Pau & Scott Alasdair M., 2012. "Monetary and Macroprudential Policy Rules in a Model with House Price Booms," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-44, June.
    10. Hyun Song Shin, 2012. "Global Banking Glut and Loan Risk Premium," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(2), pages 155-192, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Irina Kozlovtceva & Alexey Ponomarenko & Andrey Sinyakov & Stas Tatarintsev, 2019. "Financial Stability Implications of Policy Mix in a Small Open Commodity-Exporting Economy," Bank of Russia Working Paper Series wps42, Bank of Russia.
    2. Pierre-Richard Agénor & Timothy P. Jackson & Luiz Pereira da Silva, 2020. "Foreign Exchange Intervention and Financial Stability," Working Papers 202027, University of Liverpool, Department of Economics.
    3. Rodríguez, Aldo, 2020. "Estimación Bayesiana de un Modelo de Economía Abierta con Sector Bancario," Dynare Working Papers 52, CEPREMAP.
    4. Edilean Kleber da Silva Bejarano Aragón, 2021. "Specification errors, nonlinearities, and structural breaks in the Central Bank of Brazil’s reaction function," Empirical Economics, Springer, vol. 60(3), pages 1221-1243, March.
    5. FrIrina Kozlovtceva & Alexey Ponomarenko & Andrey Sinyakov & Stas Tatarintsev, 2020. "A case for leaning against the wind in a commodity-exporting economy," International Economics, CEPII research center, issue 164, pages 86-114.
    6. Ma, Yong & Lv, Lin, 2022. "Money, debt, and the effects of fiscal stimulus," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 152-178.
    7. Meng, Xiangcai & Huang, Chia-Hsing, 2021. "The time-frequency analysis of conventional and unconventional monetary policy: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 59(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Malmierca, María, 2023. "Optimal macroprudential and fiscal policy in a monetary union," Economic Modelling, Elsevier, vol. 122(C).
    2. Leonardo Nogueira Ferreira & Márcio Issao Nakane, 2018. "Macroprudential policy in a DSGE model: anchoring the countercyclical capital buffer," Economics Bulletin, AccessEcon, vol. 38(4), pages 2345-2352.
    3. Fabia A. de Carvalho & Marcos R. de Castro, 2015. "Macroprudential and Monetary Policy Interaction: a Brazilian perspective," Working Papers Series 405, Central Bank of Brazil, Research Department.
    4. Verona, Fabio & Martins, Manuel M.F. & Drumond, Inês, 2017. "Financial shocks, financial stability, and optimal Taylor rules," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 187-207.
    5. Matthieu Darracq Paries, 2018. "Financial frictions and monetary policy conduct," Erudite Ph.D Dissertations, Erudite, number ph18-01 edited by Ferhat Mihoubi, December.
    6. Carlos Rojas Q., 2018. "Política monetaria óptima bajo inestabilidad financiera en economías emergentes," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 21(1), pages 068-117, April.
    7. Benes, Jaromir & Kumhof, Michael, 2015. "Risky bank lending and countercyclical capital buffers," Journal of Economic Dynamics and Control, Elsevier, vol. 58(C), pages 58-80.
    8. Gambacorta, Leonardo & Signoretti, Federico M., 2014. "Should monetary policy lean against the wind?," Journal of Economic Dynamics and Control, Elsevier, vol. 43(C), pages 146-174.
    9. Dominic Quint & Pau Rabanal, 2014. "Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 169-236, June.
    10. Mendicino, Caterina & Punzi, Maria Teresa, 2014. "House prices, capital inflows and macroprudential policy," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 337-355.
    11. Guangling Liu & Thabang Molise, 2020. "The Optimal Monetary and Macroprudential Policies for the South African Economy," South African Journal of Economics, Economic Society of South Africa, vol. 88(3), pages 368-404, September.
    12. Clancy, Daragh & Merola, Rossana, 2017. "Countercyclical capital rules for small open economies," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 332-351.
    13. Fabio Verona & Manuel M. F. Martins & Inês Drumond, 2014. "Financial Shocks and Optimal Monetary Policy Rules," CEF.UP Working Papers 1402, Universidade do Porto, Faculdade de Economia do Porto.
    14. Giacomo Carboni & Christoffer Kok & Matthieu Darrak Paries, 2014. "Exploring the Nexus Between Macro-Prudential Policies and Monetary Policy Measures: Evidence from an Estimated DSGE Model for the Euro Area," Working Papers BFI_2013-005, Becker Friedman Institute for Research In Economics.
    15. Valerio Nispi Landi, 2017. "Capital controls, macroprudential measures and monetary policy interactions in an emerging economy," Temi di discussione (Economic working papers) 1154, Bank of Italy, Economic Research and International Relations Area.
    16. Alessandro Notarpietro & Stefano Siviero, 2015. "Optimal Monetary Policy Rules and House Prices: The Role of Financial Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S1), pages 383-410, March.
    17. Rodríguez, Aldo, 2020. "Estimación Bayesiana de un Modelo de Economía Abierta con Sector Bancario," Dynare Working Papers 52, CEPREMAP.
    18. Henry, Jérôme & Zimmermann, Maik & Leber, Miha & Kolb, Markus & Grodzicki, Maciej & Amzallag, Adrien & Vouldis, Angelos & Hałaj, Grzegorz & Pancaro, Cosimo & Gross, Marco & Baudino, Patrizia & Sydow, , 2013. "A macro stress testing framework for assessing systemic risks in the banking sector," Occasional Paper Series 152, European Central Bank.
    19. Górajski, Mariusz & Kuchta, Zbigniew, 2023. "Coordination and non-coordination risks of monetary and macroprudential authorities: A robust welfare analysis," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    20. Marcos R. Castro, 2019. "Sectoral Countercyclical Buffers in a DSGE Model with a Banking Sector," Working Papers Series 503, Central Bank of Brazil, Research Department.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:macfem:v:10:y:2017:i:3:p:215-259. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REME20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.