Will macroprudential policy counteract monetary policy's effects on financial stability?

Arbeitspapier

How does monetary policy impact upon macroprudential regulation? This paper models monetary policy's transmission to bank risk taking, and its interaction with a regulator's optimization problem. The regulator uses its macroprudential tool, a leverage ratio, to maintain financial stability, while taking account of the impact on credit provision. A change in the monetary policy rate tilts the regulator's entire trade-off. The authors show that the regulator allows interest rate changes to partly "pass through" to bank soundness by not neutralizing the risk-taking channel of monetary policy. Thus, monetary policy affects financial stability, even in the presence of macroprudential regulation

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bruegel Working Paper ; No. 2018/01

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy ; Policy Objectives; Policy Designs and Consistency; Policy Coordination ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: Macroprudential ; Leverage ; Supervision ; Transmission

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Agur, Itai ; Demertzis, Maria
• Event: Veröffentlichung
• (who): Bruegel
• (where): Brussels
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/206997
• Last update: 10.03.2025, 11:44 AM CET