Targeting financial stability: Macroprudential or monetary policy?

Arbeitspapier

This paper explores monetary-macroprudential policy interactions in a simple, calibrated New Keynesian model incorporating the possibility of a credit boom precipitating a financial crisis and a loss function reflecting financial stability considerations. Deploying the countercyclical capital buffer (CCyB) improves outcomes significantly relative to when interest rates are the only instrument. The instruments are typically substitutes, with monetary policy loosening when the CCyB tightens. We also examine when the instruments are complements and assess how different shocks, the effective lower bound for monetary policy, market-based finance and a risk-taking channel of monetary policy affect our results.

Object Details

• ISBN: 978-92-899-3540-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2278

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Central Banks and Their Policies ; Financial Crises ; Financial Institutions and Services: Government Policy and Regulation
• Subject: macroprudential policy ; monetary policy ; financial stability ; countercyclical capital buffer ; financial crises ; credit boom

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Aikman, David ; Giese, Julia ; Kapadia, Sujit ; McLeay, Michael
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2019

Further information

• DOI: doi:10.2866/038222
• Handle: http://hdl.handle.net/10419/208312
• Last update: 10.03.2025, 11:43 AM CET