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Monetary and macroprudential policy in an estimated DSGE model of the Euro Area

  • Quint, Dominic
  • Rabanal, Pau

In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and ?nancial frictions, and hence both monetary and macroprudential policy can play a role. We ?nd that the introduction of a macroprudential rule would help in reducing macroeconomic volatility, improve welfare, and partially substitute for the lack of national monetary policies. Macroprudential policy would always increase the welfare of savers, but their e¤ects on borrowers depend on the shock that hits the economy. In particular, macroprudential policy may entail welfare costs for borrowers under technology shocks, by increasing the countercyclical behavior of lending spreads.

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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2014/5.

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Date of creation: 2014
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Handle: RePEc:zbw:fubsbe:20145
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