Coordinating Monetary and Financial Regulatory Policies
54 Pages Posted: 6 Nov 2017 Last revised: 31 Jan 2018
Date Written: December 1, 2017
How to conduct macro-prudential regulation? How to coordinate monetary policy and macro-prudential policy? To address these questions, I develop a continuous-time New Keynesian economy in which a financial intermediary sector is subject to a leverage constraint. Coordination between monetary and macro-prudential policies helps to reduce the risk of entering into a financial crisis and speeds up exit from the crisis. The downside of coordination is 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
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