Monetary and Macroprudential Policy Rules in a Model with House Price Booms

37 Pages Posted: 24 Nov 2009

See all articles by Prakash Kannan

Prakash Kannan

International Monetary Fund (IMF)

Pau Rabanal

International Monetary Fund

Alasdair M. Scott

International Monetary Fund (IMF)

Date Written: September 2009

Abstract

We argue that a stronger emphasis on macrofinancial risk could provide stabilization benefits. Simulations results suggest that strong monetary reactions to accelerator mechanisms that push up credit growth and asset prices could help macroeconomic stability. In addition, using a macroprudential instrument designed specifically to dampen credit market cycles would also be useful. But invariant and rigid policy responses raise the risk of policy errors that could lower, not raise, macroeconomic stability. Hence, discretion would be required.

Keywords: Asset prices, Capital markets, Central banks, Credit controls, Credit demand, Credit risk, Economic models, External shocks, Household credit, Housing prices, Monetary policy, Price increases

Suggested Citation

Kannan, Prakash and Rabanal, Pau and Scott, Alasdair M., Monetary and Macroprudential Policy Rules in a Model with House Price Booms (September 2009). IMF Working Papers, Vol. , pp. 1-36, 2009. Available at SSRN: https://ssrn.com/abstract=1512255

Prakash Kannan

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
(202)623-8806 (Phone)

Pau Rabanal

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States

Alasdair M. Scott

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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