Trade-offs between inflation targeting and financial stability objectives: Drivers of gains from coordinating monetary and macroprudential policies

Arbeitspapier

This paper studies the trade-offs that can arise between inflation targeting and financial stability objectives. We use a simple framework to conduct macroeconomic policy analysis under three strategies: (1) a benchmark case where monetary policy pursues traditional price stability objectives; (2) monetary policy leaning against the wind; and (3) a case of policy coordination between monetary and macroprudential instruments. We find that, under certain circumstances, having financial stability objectives as an additional macroeconomic policy increases the volatility of inflation. We identify cases in which the tradeoffs in terms of macroeconomic volatility between policy objectives create scope for improvement when monetary and macroprudential policies are coordinated. These improvements are generally larger when financial shocks are the main driver of macroeconomic fluctuations.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers ; No. 2017-22

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Monetary Policy ; Policy Objectives; Policy Designs and Consistency; Policy Coordination ; Financial Institutions and Services: Government Policy and Regulation
• Subject: Price and Financial Stability ; Leaning Against the Wind ; Monetary and Macroprudential Policy Coordination

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Roldán-Peña, Jessica ; Torres-Ferro, Mauricio ; Torres García, Alberto
• Event: Veröffentlichung
• (who): Banco de México
• (where): Ciudad de México
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/174475
• Last update: 10.03.2025, 11:45 AM CET