An optimal macroprudential policy mix for segmented credit markets

Arbeitspapier

This paper analyzes the design of simple macroprudential rules for bank and non-bank credit markets in a medium-scale dynamic stochastic general equilibrium model. In the model, mutual funds support corporate bond issuance by firms with access to capital markets; a banking sector supplies loans to the remaining producers. This model is used to study the optimal design of monetary and macroprudential rules and to address whether financial stability in the banking and bond markets is welfare improving. First, in response to aggregate productivity and financial shocks, the welfare-maximizing monetary policy rule implies near price stability, while the optimal macroprudential policy rule stabilizes bank credit and bond volumes. Second, there is no trade-off between price and financial stability. Third, if the central bank cannot correctly identify a sector-specific financial shock, responding optimally as if the shock affects both sectors, then welfare outcomes are negligibly worse than those under the optimal policy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Staff Working Paper ; No. 2021-31

Classification and Topics

• Classification: Wirtschaft ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Financial Markets and the Macroeconomy ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General
• Subject: Business fluctuations and cycles ; Credit and credit aggregates ; Credit risk management ; Financial stability ; Financial system regulation and policies

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Zivanovic, Jelena
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2021

Further information

• DOI: doi:10.34989/swp-2021-31
• Handle: http://hdl.handle.net/10419/241254
• Last update: 10.03.2025, 11:45 AM CET