Interactions between monetary and macroprudential policies
I show that there are benefits from using monetary policy, i.e., interest-rate policies, to enhance financial stability.
- I show that there are benefits from using monetary policy, i.e., interest-rate policies, to enhance financial stability.
- In the second scenario, monetary and macroprudential policies jointly aim to achieve both inflation stability and financial stability.
- [3] Monetary and macroprudential policy rules, however, are allowed to be nonlinear, and contingent, in particular, on aggregate financial conditions.
- Table 1 reports benefits from conducting monetary and macroprudential policy optimally in accordance with their respective objectives under each policy scenario.
- This essentially means that monetary policy is concerned solely with keeping inflation and unemployment rates low and stable at their structural levels.
- As Table 1 shows, however, the financial stability gains from this additional contribution of monetary policy are quantitatively modest.