Arbeitspapier

Monetary policy, macroprudential policy, and financial stability

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.

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

Bibliographic citation
Series: ECB Working Paper ; No. 2297

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

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

DOI
doi:10.2866/880388
Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Martinez-Miera, David
  • Repullo, Rafael
  • European Central Bank (ECB)

Time of origin

  • 2019

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