The Interaction Between Macroprudential Policy and Monetary Policy: Overview

25 Pages Posted: 21 Oct 2020

See all articles by Matthieu Bussière

Matthieu Bussière

Banque de France

Jin Cao

Norges Bank - Research Department; Ludwig Maximilian University of Munich (LMU); CESifo (Center for Economic Studies and Ifo Institute)

Jakob de Haan

University of Groningen - Faculty of Economics and Business; De Nederlandsche Bank; CESifo (Center for Economic Studies and Ifo Institute)

Bob Hills

Bank of England - International Finance Division

Simon Lloyd

Bank of England

Baptiste Meunier

Banque de France

Justine Pedrono

Banque de France

Dennis Reinhardt

Bank of England

Sonalika Sinha

Reserve Bank of India

Rhiannon Sowerbutts

Bank of England

Konstantin Styrin

Bank of Russia

Date Written: October 21, 2020

Abstract

This paper presents the main findings of an International Banking Research Network initiative examining the interaction between monetary policy and macroprudential policy in determining international bank lending. We give an overview on the data, empirical specifications and results of the seven papers from the initiative. The papers are from a range of core and smaller advanced economies, and emerging markets. The main findings are as follows. First, there is evidence that macroprudential policy in recipient countries can partly offset the spillover effects of monetary policy conducted in core countries. Meanwhile, domestic macroprudential policy in core countries can also affect the cross‑border transmission of domestic monetary policy via lending abroad, by limiting the increase in lending by less strongly capitalised banks. Second, the findings highlight that studying heterogeneities across banks provides complementary insights to studies using more aggregate data and focusing on average effects. In particular, we find that individual bank characteristics such as bank size or G‑SIB status play a first‑order role in the transmission of these policies. Finally, the impacts differ considerably across prudential policy instruments, which also suggests the importance of more granular analysis.

Keywords: Cross-border bank lending, financial intermediation, monetary policy, macroprudential policy, policy interactions, spillovers

JEL Classification: E52, F21, F30, F42, G21

Suggested Citation

Bussiere, Matthieu and Cao, Jin and de Haan, Jakob and Hills, Bob and Lloyd, Simon and Meunier, Baptiste and Pedrono, Justine and Reinhardt, Dennis and Sinha, Sonalika and Sowerbutts, Rhiannon and Styrin, Konstantin, The Interaction Between Macroprudential Policy and Monetary Policy: Overview (October 21, 2020). Bank of England Working Paper No. 886, Available at SSRN: https://ssrn.com/abstract=3716128 or http://dx.doi.org/10.2139/ssrn.3716128

Matthieu Bussiere

Banque de France ( email )

Paris
France

Jin Cao

Norges Bank - Research Department ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Ludwig Maximilian University of Munich (LMU) ( email )

Bankplassen 2, PB 1179 Sentrum
Oslo, NO-0107
Norway

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Jakob De Haan

University of Groningen - Faculty of Economics and Business ( email )

PO Box 800
Groningen, 9700 AV
Netherlands
+31 0 50 3633706 (Fax)

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bob Hills (Contact Author)

Bank of England - International Finance Division ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Simon Lloyd

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://sites.google.com/view/splloyd

Baptiste Meunier

Banque de France ( email )

Paris
France

Justine Pedrono

Banque de France ( email )

Paris
France

Dennis Reinhardt

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Sonalika Sinha

Reserve Bank of India ( email )

Reserve Bank of India
Central Office
Mumbai, Maharashtra 400001
India

HOME PAGE: http://www.sonalikasinha.com

Rhiannon Sowerbutts

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Konstantin Styrin

Bank of Russia ( email )

12 Neglinnaya Street
Moscow, 107016
Russia

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