Interactions and Coordination between Monetary and Macro-prudential Policies
61 Pages Posted: 6 Nov 2017 Last revised: 12 Apr 2019
Date Written: February 2019
I study real and welfare effects of monetary and macro-prudential policies in a general equilibrium model of financial intermediation with endogenous risk. I obtain that macro-prudential capital requirements reduce the risk and intensity of systemic financial distress as well as facilitate the recovery from financial distress episodes. Coordination with monetary (i.e., interest-rate) policy reinforces these effects, but at the expense of increasing variability in inflation and in the employment gap.
Keywords: Monetary policy, Macro-prudential policy, Policy coordination, Financial frictions, Nominal Rigidities
JEL Classification: E31, E32, E44, E52, E61, G01
Suggested Citation: Suggested Citation