Informality, Frictions, and Macroprudential Policy

38 Pages Posted: 22 Jan 2020

See all articles by Moez Ben Hassine

Moez Ben Hassine

International Monetary Fund (IMF)

Nooman Rebei

International Monetary Fund (IMF)

Date Written: November 2019

Abstract

We analyze the effects of macroprudential policies through the lens of an estimated dynamic stochastic general equilibrium (DSGE) model tailored to developing markets. In particular, we explicitly introduce informality in the labor and goods markets within a small open economy embedding financial frictions, nominal and real rigidities, labor search and matching, and an explicit banking sector. We use the estimated version of the model to run welfare analysis under optimized monetary and macroprudential rules. Results show that although informality reduces the efficiency of macroprudential policies following a convex fashion, combining the latter with an inflation targeting objective could be beneficial.

Keywords: Real sector, Financial crises, Price indexes, Business cycles, Unemployment, Macroprudential Policies, Monetary Policy, Collateral Constraints, Informal Sector, Developing Market., WP, technology shock, countercyclical, formal sector, informality, loan-to-value

JEL Classification: E44, E52, E58, G28, E01, G21, O24, Z13

Suggested Citation

Hassine, Moez Ben and Rebei, Nooman, Informality, Frictions, and Macroprudential Policy (November 2019). IMF Working Paper No. 19/255. Available at SSRN: https://ssrn.com/abstract=3523128

Moez Ben Hassine (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nooman Rebei

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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