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Monetary Policy and Macroprudential Policy: Rivals or Teammates?

Author

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  • Simona Malovana

    () (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic
    Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic)

  • Jan Frait

    () (University of Finance and Administration, Prague, Czech Republic
    Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic)

Abstract

This paper sheds some light on situations in which monetary and macroprudential policies may interact (and potentially get into conflict) and contributes to the discussion about the coordination of those policies. Using data for the Czech Republic and five euro area countries we show that monetary tightening has a negative impact on the credit-to-GDP ratio and the non-risk-weighted bank capital ratio (i.e. a positive impact on bank leverage), while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build-up of financial vulnerabilities, i.e. it boosts the credit cycle. On the other hand, the effect of the higher bank capital ratio is associated with some degree of uncertainty. For these and other reasons, coordination of the two policies is necessary to avoid an undesirable policy mix preventing effective achievement of the main objectives in the two policy areas.

Suggested Citation

  • Simona Malovana & Jan Frait, 2016. "Monetary Policy and Macroprudential Policy: Rivals or Teammates?," Working Papers IES 2016/19, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2016.
  • Handle: RePEc:fau:wpaper:wp2016_19
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    Citations

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    Cited by:

    1. Simona Malovana & Dominika Kolcunova & Vaclav Broz, 2017. "Does Monetary Policy Influence Banks' Perception of Risks?," Working Papers 2017/9, Czech National Bank.
    2. Tomas Havranek & Mojmir Hampl, 2017. "Should Inflation Measures Used by Central Banks Incorporate House Prices? The Czech National Bank's Approach," Research and Policy Notes 2017/01, Czech National Bank.
    3. Mojmir Hampl & Tomas Havranek, 2017. "Should Inflation Measures Used by Central Banks Incorporate House Prices? The Czech Approach," Working Papers IES 2017/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2017.
    4. repec:cnb:ocpubv:rb16/1 is not listed on IDEAS
    5. Martinez-Miera, David & Repullo, Rafael, 2019. "Monetary Policy, Macroprudential Policy, and Financial Stability," CEPR Discussion Papers 13530, C.E.P.R. Discussion Papers.
    6. repec:vrs:reoecp:v:18:y:2018:i:3:p:195-224:n:2 is not listed on IDEAS
    7. repec:eee:ecosys:v:43:y:2019:i:2:10 is not listed on IDEAS
    8. repec:cnb:ocpubv:rb16/2 is not listed on IDEAS
    9. repec:cnb:ocpubc:fsr1718/2 is not listed on IDEAS
    10. Glocker, Christian, 2019. "Do reserve requirements reduce the risk of bank failure?," MPRA Paper 95634, University Library of Munich, Germany.
    11. repec:cnb:ocpubv:rb15/2 is not listed on IDEAS
    12. Miroslav Plasil & Jakub Seidler & Petr Hlavac & Volha Audzei & Jakub Mateju & Michal Kejak & Simona Malovana & Jan Frait, 2016. "Financial Cycles and Macroprudential and Monetary Policies," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 14, number rb14/2 edited by Jan Babecky & Michal Hlavacek, March.

    More about this item

    Keywords

    Bayesian estimation; financial stability; macroprudential policy; monetary policy; time-varying panel VAR model;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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