Monetary policy, macroprudential policy, and financial stability

Arbeitspapier

This paper reexamines from a theoretical perspective the role of monetary and macroprudential policies in addressing the build-up of risks in the financial system. We construct a stylized general equilibrium model in which the key friction comes from a moral hazard problem in firms' financing that banks' equity capital serves to ameliorate. Tight monetary policy is introduced by open market sales of government debt, and tight macroprudential policy by an increase in capital requirements. We show that both policies are useful, but macroprudential policy is more effective in fostering financial stability and leads to higher social welfare.

Object Details

• ISBN: 978-92-899-3559-3
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2297

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Financial Markets and the Macroeconomy ; Monetary Policy
• Subject: Bank monitoring ; intermediation margin ; monetary policy ; macroprudential policy ; capital requirements ; financial stability

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Martinez-Miera, David ; Repullo, Rafael
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2019

Further information

• DOI: doi:10.2866/880388
• Handle: http://hdl.handle.net/10419/208331
• Last update: 10.03.2025, 11:45 AM CET