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How Complementary Are Prudential Regulation and Monetary Policy?

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  • Otaviano Canuto

Abstract

Could either monetary policy or financial prudential regulation be relied on individually to mitigate asset price cycles or their effects? If both ways are effective, monetary policy and prudential regulation could then be considered “substitutes,” in the sense that the individual use of either instrument leads to a reduction in the volatility of both corresponding targets. This note, however, argues in favor of complementarity—rather than substitution—in the use of monetary and macroprudential policies: the combined (articulate) use of both policies tends to be more effective than a standalone implementation of either.
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Suggested Citation

  • Otaviano Canuto, 2011. "How Complementary Are Prudential Regulation and Monetary Policy?," World Bank Publications - Reports 10089, The World Bank Group.
    • Handle: RePEc:wbk:wboper:10089
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    References listed on IDEAS

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    13. repec:pri:cepsud:198blinder is not listed on IDEAS
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    Cited by:

    1. Fabrice Collard & Harris Dellas & Behzad Diba & Olivier Loisel, 2017. "Optimal Monetary and Prudential Policies," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(1), pages 40-87, January.
    2. Otaviano Canuto & Swati R. Ghosh, 2013. "Dealing with the Challenges of Macro Financial Linkages in Emerging Markets," World Bank Publications - Books, The World Bank Group, number 16202, December.

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    More about this item

    Keywords

    Finance and Financial Sector Development - Financial Intermediation Finance and Financial Sector Development - Debt Markets Banks and Banking Reform Finance and Financial Sector Development - Currencies and Exchange Rates Private Sector Development - Emerging Markets;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • 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
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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