Monetary and Macroprudential Policies

47 Pages Posted: 13 May 2011

Date Written: March 15, 2011


We use a dynamic general equilibrium model featuring a banking sector to assess the interaction between macroprudential policy and monetary policy. We find that in “normal” times (when the economic cycle is driven by supply shocks) macroprudential policy generates only modest benefits for macroeconomic stability over a “monetary-policy-only” world. And lack of cooperation between the macroprudential authority and the central bank may even result in conflicting policies, hence suboptimal results. The benefits of introducing macroprudential policy tend to be sizeable when financial or housing market shocks, which affect the supply of loans, are important drivers of economic dynamics. In these cases a cooperative central bank will “lend a hand” to the macroprudential authority, working for broader objectives than just price stability in order to improve overall economic stability.

Keywords: macroprudential policy, monetary policy, capital requirements

JEL Classification: E44, E58, E61

Suggested Citation

Angelini, Paolo and Neri, Stefano and Panetta, Fabio, Monetary and Macroprudential Policies (March 15, 2011). Bank of Italy Temi di Discussione (Working Paper) No. 801. Available at SSRN: or

Paolo Angelini (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

Stefano Neri

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
+39 06 4792 2821 (Phone)

Fabio Panetta

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
+39 06 4792 4143 (Phone)
+39 06 4792 3723 (Fax)

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