Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report
60 Pages Posted: 7 Jul 2016 Last revised: 9 Aug 2024
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Monetary versus Macroprudential Policies Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report
Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report
Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report
Date Written: June 2016
Abstract
We have a world of conjoined monetary and macroprudential policies. But can they function smoothly and with what effects? The evidence is quite limited, especially for advanced economies. We adopt a historical laboratory. From the 1950s to the 1980s, the UK used credit policy tools alongside conventional interest rate policy. These tools are similar to today’s macroprudential policies. We document these tools and craft a new dataset to estimate their effects using modern high-frequency identification with a novel empirical strategy, Factor-Augmented Local Projection. Monetary policy acted mainly on inflation but credit policy acted primarily to modulate bank lending.
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