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Macroprudential Regulation and the Monetary Transmission Mechanism

Listed author(s):
  • Pierre-Richard Agénor
  • Luiz A. Pereira da Silva

This paper presents a simple dynamic macroeconomic model of a bank-dominated financial system that captures some of the key credit market imperfections commonly found in middle-income countries. The model is used to analyze the interactions between monetary and macroprudential policies, involving, in the latter case, changes in reserve requirements and the imposition of an upper limit on banks’ leverage ratio. Policy implications are also discussed, in the context of the post-crisis debate on the use of macroprudential tools. The analysis shows that understanding how these tools operate is essential because they may alter, possibly in substantial ways, the monetary transmission mechanism.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps254.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 254.

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Date of creation: Nov 2011
Handle: RePEc:bcb:wpaper:254
Contact details of provider: Web page: http://www.bcb.gov.br/?english

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