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Macroprudential Regulation and the Monetary Transmission Mechanism

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  • Pierre-Richard Agénor
  • Luiz A. Pereira da Silva

Abstract

The 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 analyse the interactions between monetary and macroprudential policies, involving, in the latter case, changes in reserve requirements. In addition to a qualitative analysis, a calibrated version is used to study numerically the transitional dynamics and steady-state effects of an increase in the reserve requirement ratio, under alternative parameter values. The analysis shows that understanding how these tools operate is essential because they may alter, possibly in substantial ways, the monetary transmission mechanism.

Suggested Citation

  • Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Macroprudential Regulation and the Monetary Transmission Mechanism," Centre for Growth and Business Cycle Research Discussion Paper Series 185, Economics, The University of Manchester.
  • Handle: RePEc:man:cgbcrp:185
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    Cited by:

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    2. Kuttner, Kenneth N. & Shim, Ilhyock, 2016. "Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies," Journal of Financial Stability, Elsevier, vol. 26(C), pages 31-44.
    3. Agénor, Pierre-Richard & Alper, Koray & Pereira da Silva, Luiz, 2018. "External shocks, financial volatility and reserve requirements in an open economy," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 23-43.
    4. Agénor, P.-R. & Alper, K. & Pereira da Silva, L., 2012. "Capital requirements and business cycles with credit market imperfections," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 687-705.
    5. Bruno Martins, 2012. "Local Market Structure and Bank Competition: evidence from the Brazilian auto loan market," Working Papers Series 299, Central Bank of Brazil, Research Department.
    6. Alin-Marius ANDRIEŞ & Ioana PLEŞCĂU, 2020. "The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-30, September.
    7. Douglas da Rosa München & Herbert Kimura, 2020. "Regulatory Banking Leverage: what do you know?," Working Papers Series 540, Central Bank of Brazil, Research Department.
    8. Primus, Keyra, 2017. "Excess reserves, monetary policy and financial volatility," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 153-168.
    9. George J. Bratsiotis, 2016. "Liquidity Regulation, Monetary Policy and Welfare," Centre for Growth and Business Cycle Research Discussion Paper Series 228, Economics, The Univeristy of Manchester.
    10. Agénor, Pierre-Richard & Pereira da Silva, Luiz, 2017. "Cyclically adjusted provisions and financial stability," Journal of Financial Stability, Elsevier, vol. 28(C), pages 143-162.
    11. Bratsiotis, George, 2018. "Credit Risk, Excess Reserves and Monetary Policy: The Deposits Channel," EconStor Preprints 172770, ZBW - Leibniz Information Centre for Economics.
    12. Krug, Sebastian, 2018. "The interaction between monetary and macroprudential policy: Should central banks 'lean against the wind' to foster macro-financial stability?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW), vol. 12, pages 1-69.
    13. Pierre-Richard Agénor & Alessandro Flamini, 2016. "Institutional Mandates for Macroeconomic and Financial Stability," Centre for Growth and Business Cycle Research Discussion Paper Series 231, Economics, The University of Manchester.
    14. Lorenčič Eva & Festić Mejra, 2021. "The Impact of Seven Macroprudential Policy Instruments on Financial Stability in Six Euro Area Economies," Review of Economic Perspectives, Sciendo, vol. 21(3), pages 259-290, September.
    15. George Bratsiotis, 2018. "Credit Risk, Excess Reserves and Monetary Policy: The Deposits Channel," Centre for Growth and Business Cycle Research Discussion Paper Series 243, Economics, The University of Manchester.
    16. Tayler, William J. & Zilberman, Roy, 2016. "Macroprudential regulation, credit spreads and the role of monetary policy," Journal of Financial Stability, Elsevier, vol. 26(C), pages 144-158.
    17. José Renato Haas Ornelas & José Santiago Fajardo Barbachan & Aquiles Rocha de Farias, 2012. "Estimating Relative Risk Aversion, Risk-Neutral and Real-World Densities using Brazilian Real Currency Options," Working Papers Series 269, Central Bank of Brazil, Research Department.
    18. Alexandru Monahov, 2015. "The Effects of Prudential Supervision on Bank Resiliency and Profits in a Multi-Agent Setting," GREDEG Working Papers 2015-24, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    19. Kurowski, Łukasz & Rogowicz, Karol, 2018. "Are business and credit cycles synchronised internally or externally?," Economic Modelling, Elsevier, vol. 74(C), pages 124-141.
    20. Angelo Marsiglia Fasolo, 2012. "A Note on Particle Filters Applied to DSGE Models," Working Papers Series 281, Central Bank of Brazil, Research Department.
    21. Javier Garcia-Cicco & Markus Kirchner & Julio Carrillo & Diego Rodríguez & Fernando Perez & Rocío Gondo & Carlos Montoro & Roberto Chang, 2017. "Financial and real shocks and the effectiveness of monetary and macroprudential policies in Latin American countries," BIS Working Papers 668, Bank for International Settlements.
    22. George J. Bratsiotis, 2018. "Credit Risk, Excess Reserves and Monetary Policy: The Deposits," Centre for Growth and Business Cycle Research Discussion Paper Series 236, Economics, The University of Manchester.
    23. Kilponen, Juha & Orjasniemi, Seppo & Ripatti, Antti & Verona, Fabio, 2016. "The Aino 2.0 model," Research Discussion Papers 16/2016, Bank of Finland.
    24. Waldyr Areosa & Marta Areosa, 2012. "Information (in) Chains: information transmission through production chains," Working Papers Series 286, Central Bank of Brazil, Research Department.

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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