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Monetary and macroprudential policies

Author

Listed:
  • Paolo Angelini

    (Banca d'Italia)

  • Stefano Neri

    (Banca d'Italia)

  • Fabio Panetta

    (Banca d'Italia)

Abstract

We use a dynamic general equilibrium model featuring a banking sector to assess the interaction between macroprudential policy and monetary policy. We find that in "normal" times (when the economic cycle is driven by supply shocks) macroprudential policy generates only modest benefits for macroeconomic stability over a "monetary-policy-only" world. And lack of cooperation between the macroprudential authority and the central bank may even result in conflicting policies, hence suboptimal results. The benefits of introducing macroprudential policy tend to be sizeable when financial or housing market shocks, which affect the supply of loans, are important drivers of economic dynamics. In these cases a cooperative central bank will "lend a hand" to the macroprudential authority, working for broader objectives than just price stability in order to improve overall economic stability.

Suggested Citation

  • Paolo Angelini & Stefano Neri & Fabio Panetta, 2011. "Monetary and macroprudential policies," Temi di discussione (Economic working papers) 801, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_801_11
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    More about this item

    Keywords

    macroprudential policy; monetary policy; capital requirements;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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