Effects of Monetary and Macro-Prudential Policies – Evidence from Inflation Targeting Economies in the Asia-Pacific Region and Potential Implications for China

29 Pages Posted: 8 Mar 2017

See all articles by Soyoung Kim

Soyoung Kim

Seoul National University

Aaron N. Mehrotra

Bank for International Settlements (BIS)

Date Written: March 2, 2017

Abstract

We examine the effects of monetary and macroprudential policies in the Asia-Pacific region, where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability. Using structural panel vector autoregressions that identify both monetary and macro-prudential policy actions, we show that tighter macroprudential policies used to contain credit growth have also had a significant negative impact on macroeconomic aggregates such as real GDP and the price level. The similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times. However, they could also create challenges for policy-makers, especially during times when low inflation coincides with buoyant credit growth.

Keywords: financial stability, price stability, macroprudential policy, monetary policy, panel VAR

JEL Classification: E58, E61

Suggested Citation

Kim, Soyoung and Mehrotra, Aaron N., Effects of Monetary and Macro-Prudential Policies – Evidence from Inflation Targeting Economies in the Asia-Pacific Region and Potential Implications for China (March 2, 2017). BOFIT Discussion Paper No. 4/2017, Available at SSRN: https://ssrn.com/abstract=2929407

Soyoung Kim (Contact Author)

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)
+82-2-880- 2689 (Phone)

Aaron N. Mehrotra

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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