Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report

45 Pages Posted: 27 Jun 2016 Last revised: 19 Nov 2018

See all articles by David Aikman

David Aikman

Bank of England - Monetary Assessment and Strategy Division

Oliver Bush

London School of Economics & Political Science (LSE); Bank of England

Alan M. Taylor

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: June 2016

Abstract

We have entered a world of conjoined monetary and macroprudential policies. But can they function smoothly in tandem, and with what effects? Since this policy cocktail has not been seen for decades, the empirical evidence is almost non-existent. We can only fix this shortcoming in a historical laboratory. The Radcliffe Report (1959), notoriously sceptical about the efficacy of monetary policy, embodied views which led the UK to a three-decade experiment of using credit policy tools alongside conventional changes in the central bank interest rate. These non-price tools are similar to policies now being considered or used by macroprudential policymakers. We describe these tools, document how they were used by the authorities, and craft a new, largely hand-collected data set to help estimate their effects. We develop a novel empirical strategy, which we term Factor-Augmented Local Projection (FALP), to investigate the subtly different impacts of both monetary and macroprudential policies. Monetary policy innovations acted on output and inflation broadly in line with consensus views today, but tighter credit policy acted primarily to modulate bank lending whilst reducing output and leaving inflation unchanged.

Keywords: credit controls, macroprudential policy, monetary policy

JEL Classification: E50, G18, N14

Suggested Citation

Aikman, David and Bush, Oliver and Taylor, Alan M., Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report (June 2016). CEPR Discussion Paper No. DP11353, Available at SSRN: https://ssrn.com/abstract=2801034

David Aikman (Contact Author)

Bank of England - Monetary Assessment and Strategy Division ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Oliver Bush

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Alan M. Taylor

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-1572 (Phone)
530-752-9382 (Fax)

HOME PAGE: http://www.econ.ucdavis.edu/faculty/amtaylor/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

HOME PAGE: http://nber.org

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://cepr.org

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