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
Date Written: March 2, 2017
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: Suggested Citation