IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Monetary and macroprudential policies

  • Angelini, Paolo
  • Neri, Stefano
  • Panetta, Fabio

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 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. From a welfare perspective, the results do not yield a uniform ranking of the regimes and, at the same time, highlight important redistributive effects of both supply and financial shocks. JEL Classification: E44, E58, E61

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1449.pdf
Download Restriction: no

Paper provided by European Central Bank in its series Working Paper Series with number 1449.

as
in new window

Length:
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:ecb:ecbwps:20121449
Contact details of provider: Postal:
60640 Frankfurt am Main, Germany

Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Tommaso Monacelli, 2006. "Optimal Monetary Policy with Collateralized Household Debt and Borrowing Constraints," NBER Working Papers 12470, National Bureau of Economic Research, Inc.
  2. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  3. Jinill Kim & Sunghyun Henry Kim, 1999. "Spurious Welfare Reversals in International Business Cycle Models," Virginia Economics Online Papers 319, University of Virginia, Department of Economics.
  4. Papa M'B. P. N'Diaye, 2009. "Countercyclical Macro Prudential Policies in a Supporting Role to Monetary Policy," IMF Working Papers 09/257, International Monetary Fund.
  5. Alasdair Scott & Pau Rabanal & Prakash Kannan, 2009. "Monetary and Macroprudential Policy Rules in a Model with House Price Booms," IMF Working Papers 09/251, International Monetary Fund.
  6. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-10, May.
  7. Ehrmann, M. & Smets, F., 2001. "Uncertain Potential Output: Implications for Monetary Policy," Papers 59, Quebec a Montreal - Recherche en gestion.
  8. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  9. Pietro Catte & Pietro Cova & Patrizio Pagano & Ignazio Visco, 2010. "The role of macroeconomic policies in the global crisis," Questioni di Economia e Finanza (Occasional Papers) 69, Bank of Italy, Economic Research and International Relations Area.
  10. Petit, Maria Luisa, 1989. "Fiscal and Monetary Policy Co-ordination: A Differential Game Approac h," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(2), pages 161-79, April-Jun.
  11. Gianluca Benigno & Huigang Chen & Christopher Otrok & Alessandro Rebucci & Eric R. Young, 2011. "Revisiting Overborrowing and its Policy Implications," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.), Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 6, pages 145-184 Central Bank of Chile.
  12. Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," CEPR Discussion Papers 4334, C.E.P.R. Discussion Papers.
  13. Paolo Angelini & Andrea Enria & Stefano Neri & Fabio Panetta & Mario Quagliariello, 2010. "Pro-cyclicality of capital regulation: is it a problem? How to fix it?," Questioni di Economia e Finanza (Occasional Papers) 74, Bank of Italy, Economic Research and International Relations Area.
  14. Claudio Borio & Mathias Drehmann, 2009. "Assessing the risk of banking crises - revisited," BIS Quarterly Review, Bank for International Settlements, March.
  15. Denis Beau & Christophe Cahn & Laurent Clerc & Benoît Mojon, 2014. "Macro-Prudential Policy and the Conduct of Monetary Policy," Central Banking, Analysis, and Economic Policies Book Series, in: Sofía Bauducco & Lawrence Christiano & Claudio Raddatz (ed.), Macroeconomic and Financial Stability: challenges for Monetary Policy, edition 1, volume 19, chapter 9, pages 273-314 Central Bank of Chile.
  16. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, 09.
  17. Gianluca Benigno & Huigang Chen & Christopher Otrok & Alessandro Rebucci & Eric Young, 2010. "Revisiting Overborrowing and its Policy Implications," Research Department Publications 4676, .
  18. Olivier Jeanne & Anton Korinek, 2010. "Managing Credit Booms and Busts: A Pigouvian Taxation Approach," NBER Working Papers 16377, National Bureau of Economic Research, Inc.
  19. Angeloni, Ignazio & Faia, Ester, 2009. "A tale of two policies: prudential regulation and monetary policy with fragile banks," Kiel Working Papers 1569, Kiel Institute for the World Economy (IfW).
  20. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  21. Skander Van den Heuvel, 2005. "The Welfare Cost of Bank Capital Requirements," 2005 Meeting Papers 880, Society for Economic Dynamics.
  22. repec:idb:brikps:27738 is not listed on IDEAS
  23. Javier Bianchi, 2011. "Overborrowing and Systemic Externalities in the Business Cycle," American Economic Review, American Economic Association, vol. 101(7), pages 3400-3426, December.
  24. Avinash Dixit & Luisa Lambertini, 2003. "Interactions of Commitment and Discretion in Monetary and Fiscal Policies," Boston College Working Papers in Economics 575, Boston College Department of Economics.
  25. Francisco Covas & Shigeru Fujita, 2010. "Procyclicality of Capital Requirements in a General Equilibrium Model of Liquidity Dependence," International Journal of Central Banking, International Journal of Central Banking, vol. 6(34), pages 137-173, December.
  26. Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers : evidence from an estimated DSGE model," Working Paper Research 145, National Bank of Belgium.
  27. Benigno, Gianluca & Chen, Huigang & Otrok, Christopher & Rebucci, Alessandro & Young, Eric R., 2013. "Financial crises and macro-prudential policies," Journal of International Economics, Elsevier, vol. 89(2), pages 453-470.
  28. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
  29. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  30. Per Krusell & Anthony A. Smith, Jr., 1999. "On the Welfare Effects of Eliminating Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 245-272, January.
  31. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  32. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
  33. repec:idb:brikps:6855 is not listed on IDEAS
  34. Reinhart, Carmen M. & Rogoff, Kenneth S., 2008. "Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison," Scholarly Articles 11129156, Harvard University Department of Economics.
  35. Pelin Ilbas, 2012. "Revealing the preferences of the US Federal Reserve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(3), pages 440-473, 04.
  36. Ozlale, Umit, 2003. "Price stability vs. output stability: tales of federal reserve administrations," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1595-1610, July.
  37. Charles R. Bean & Matthias Paustian & Adrian Penalver & Tim Taylor, 2010. "Monetary policy after the fall," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 267-328.
  38. Rafael Repullo & Javier Suarez, 2008. "The Procyclical Effects Of Basel Ii," Working Papers wp2008_0809, CEMFI.
  39. Gianluca Benigno & Huigang Chen & Christopher Otrok & Alessandro Rebucci & Eric Young, 2011. "Financial Crises and Macro-Prudential Policies," Research Department Publications 4710, .
  40. Acharya, Viral V & Mehran, Hamid & Thakor, Anjan, 2012. "Caught between Scylla and Charybdis? Regulating bank leverage when there is rent-seeking and risk-shifting," CEPR Discussion Papers 8822, C.E.P.R. Discussion Papers.
  41. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
  42. Enrique G. Mendoza & Javier Bianchi, 2011. "Overborrowing, Financial Crises and ‘Macro-prudential’ Policy," IMF Working Papers 11/24, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20121449. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.