The Interaction Of Monetary And Macroprudential Policies

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The Interaction of Monetary and Macroprudential Policies

International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Research Dept.
The Interaction of Monetary and Macroprudential Policies Book PDF

Author : International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Research Dept.
Publisher : International Monetary Fund
Page : 36 pages
File Size : 49,8 Mb
Release : 2012-12-29
Category : Business & Economics
ISBN : 9781498339506

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The Interaction of Monetary and Macroprudential Policies by International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Research Dept. Pdf

The recent crisis showed that price stability does not guarantee macroeconomic stability. In several countries, dangerous financial imbalances developed under low inflation and small output gaps. To ensure macroeconomic stability, policy has to include financial stability as an additional objective. But a new objective demands new tools: macroprudential tools that can target specific sources of financial imbalances (something monetary policy is not well suited to do). Effective macroprudential policies (which include a range of constraints on leverage and the composition of balance sheets) could then contain risks ex ante and help build buffers to absorb shocks ex post.

The Interaction of Monetary and Macroprudential Policies - Background Paper

International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Western Hemisphere Dept.,International Monetary Fund. European Dept.
The Interaction of Monetary and Macroprudential Policies Background Paper Book PDF

Author : International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Western Hemisphere Dept.,International Monetary Fund. European Dept.
Publisher : International Monetary Fund
Page : 68 pages
File Size : 49,9 Mb
Release : 2012-12-27
Category : Business & Economics
ISBN : 9781498339513

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The Interaction of Monetary and Macroprudential Policies - Background Paper by International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Western Hemisphere Dept.,International Monetary Fund. European Dept. Pdf

This paper provides background material to support the Board paper on the interaction of monetary and macroprudential policies. It analyzes the scope for and evidence on interactions between monetary and macroprudential policies. It first reviews a recent conceptual literature on interactive effects that arise when both macroprudential and monetary policy are employed. It goes on to explore the “side effects” of monetary policy on financial stability and their implications for macroprudential policy. It finally addresses the strength of possible effects of macroprudential policies on output and price stability, and draws out implications for the conduct of monetary policy.

Key Aspects of Macroprudential Policy - Background Paper

International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Monetary and Capital Markets Department
Key Aspects of Macroprudential Policy Background Paper Book PDF

Author : International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 64 pages
File Size : 49,9 Mb
Release : 2013-10-06
Category : Business & Economics
ISBN : 9781498341714

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Key Aspects of Macroprudential Policy - Background Paper by International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Monetary and Capital Markets Department Pdf

The countercyclical capital buffer (CCB) was proposed by the Basel committee to increase the resilience of the banking sector to negative shocks. The interactions between banking sector losses and the real economy highlight the importance of building a capital buffer in periods when systemic risks are rising. Basel III introduces a framework for a time-varying capital buffer on top of the minimum capital requirement and another time-invariant buffer (the conservation buffer). The CCB aims to make banks more resilient against imbalances in credit markets and thereby enhance medium-term prospects of the economy—in good times when system-wide risks are growing, the regulators could impose the CCB which would help the banks to withstand losses in bad times.

Key Aspects of Macroprudential Policy

International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Monetary and Capital Markets Department
Key Aspects of Macroprudential Policy Book PDF

Author : International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 62 pages
File Size : 45,7 Mb
Release : 2013-10-06
Category : Business & Economics
ISBN : 9781498341707

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Key Aspects of Macroprudential Policy by International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Monetary and Capital Markets Department Pdf

The crisis has underscored the costs of systemic instability at both the national and the global levels and highlighted the need for dedicated macroprudential policies to achieve financial stability. Building on recent advances, this paper provides a framework to inform the IMF’s country-specific advice on macroprudential policy. It recognizes that developing macroprudential policy is a work in progress, and addresses key issues to help ensure its effectiveness.

Monetary and Macroprudential Policies to Manage Capital Flows

Juan Pablo Medina Guzman,Mr.Jorge Roldos
Monetary and Macroprudential Policies to Manage Capital Flows Book PDF

Author : Juan Pablo Medina Guzman,Mr.Jorge Roldos
Publisher : International Monetary Fund
Page : 44 pages
File Size : 48,6 Mb
Release : 2014-02-12
Category : Business & Economics
ISBN : 9781484302897

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Monetary and Macroprudential Policies to Manage Capital Flows by Juan Pablo Medina Guzman,Mr.Jorge Roldos Pdf

We study interactions between monetary and macroprudential policies in a model with nominal and financial frictions. The latter derive from a financial sector that provides credit and liquidity services that lead to a financial accelerator-cum-fire-sales amplification mechanism. In response to fluctuations in world interest rates, inflation targeting dominates standard Taylor rules, but leads to increased volatility in credit and asset prices. The use of a countercyclical macroprudential instrument in addition to the policy rate improves welfare and has important implications for the conduct of monetary policy. “Leaning against the wind” or augmenting a standard Taylor rule with an argument on credit growth may not be an effective policy response.

Macroprudential and Microprudential Policies

Jacek Osinski,Katharine Seal,Mr.Lex Hoogduin
Macroprudential and Microprudential Policies Book PDF

Author : Jacek Osinski,Katharine Seal,Mr.Lex Hoogduin
Publisher : International Monetary Fund
Page : 28 pages
File Size : 40,9 Mb
Release : 2013-06-21
Category : Business & Economics
ISBN : 9781484369999

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Macroprudential and Microprudential Policies by Jacek Osinski,Katharine Seal,Mr.Lex Hoogduin Pdf

Effective arrangements for micro and macroprudential policies to further overall financial stability are strongly desirable for all countries, emerging or advanced. Both policies complement each other, but there can also be potential areas of overlap and conflict, which can complicate this cooperation. Organizing their very close interactions can help contain these potential tensions. This note clarifies the essential features of macroprudential and microprudential policies and their interactions, and delineates their borderline. It proposes mechanisms for aligning both policies in the pursuit of financial stability by identifying those elements that are desirable for effective cooperation between them. The note provides general guidance. Actual arrangements will need take into account country-specific circumstances, reflecting the fact that that there is no “one size fits all.”

The Micro Impact of Macroprudential Policies: Firm-Level Evidence

Meghana Ayyagari,Thorsten Beck,Mr.Maria Soledad Martinez Peria
The Micro Impact of Macroprudential Policies Firm Level Evidence Book PDF

Author : Meghana Ayyagari,Thorsten Beck,Mr.Maria Soledad Martinez Peria
Publisher : International Monetary Fund
Page : 65 pages
File Size : 41,8 Mb
Release : 2018-12-07
Category : Business & Economics
ISBN : 9781484390504

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The Micro Impact of Macroprudential Policies: Firm-Level Evidence by Meghana Ayyagari,Thorsten Beck,Mr.Maria Soledad Martinez Peria Pdf

Combining balance sheet data on 900,000 firms from 48 countries with information on the adoption of macroprudential policies during 2003-2011, we find that these policies are associated with lower credit growth. These effects are especially significant for micro, small and medium enterprises (MSMEs) and young firms that, according to the literature, are more financially constrained and bank dependent. Among MSMEs and young firms, those with weaker balance sheets exhibit lower credit growth in conjunction with the adoption of macroprudential policies, suggesting that these policies can enhance financial stability. Finally, our results show that macroprudential policies have real effects, as they are associated with lower investment and sales growth.

Macroprudential and Monetary Policy Interactions in a DSGE Model for Sweden

Mr.Jiaqian Chen,Mr.Francesco Columba
Macroprudential and Monetary Policy Interactions in a DSGE Model for Sweden Book PDF

Author : Mr.Jiaqian Chen,Mr.Francesco Columba
Publisher : International Monetary Fund
Page : 58 pages
File Size : 43,5 Mb
Release : 2016-03-23
Category : Business & Economics
ISBN : 9781475546545

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Macroprudential and Monetary Policy Interactions in a DSGE Model for Sweden by Mr.Jiaqian Chen,Mr.Francesco Columba Pdf

We analyse the effects of macroprudential and monetary policies and their interactions using an estimated dynamic stochastic general equilibrium (DSGE) model tailored to Sweden. Households face a ceiling on their loan-to-value ratio and must amortize their mortgages. The government grants mortgage interest payment deductions. Lending rates are affected by mortgage risk weights. We find that demand-side macroprudential measures are more effective in curbing household debt ratios than monetary policy, and they are less costly in terms of foregone consumption. A tighter macroprudential stance is also found to be welfare improving, by promoting lower consumption volatility in response to shocks, especially when using a combination of macroprudential instruments.

An Overview of Macroprudential Policy Tools

Mr.Stijn Claessens
An Overview of Macroprudential Policy Tools Book PDF

Author : Mr.Stijn Claessens
Publisher : International Monetary Fund
Page : 38 pages
File Size : 44,8 Mb
Release : 2014-12-11
Category : Business & Economics
ISBN : 9781484358115

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An Overview of Macroprudential Policy Tools by Mr.Stijn Claessens Pdf

Macroprudential policies – caps on loan to value ratios, limits on credit growth and other balance sheets restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies – have become part of the policy paradigm in emerging markets and advanced countries alike. But knowledge is still limited on these tools. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They can also interact with various other policies, such as monetary and microprudential, raising coordination issues. Some countries, especially emerging markets, have used these tools and analyses suggest that some can reduce procyclicality and crisis risks. Yet, much remains to be studied, including tools’ costs ? by adversely affecting resource allocations; how to best adapt tools to country circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting tools.

On the use of Monetary and Macroprudential Policies for Small Open Economies

Mr.F. Gulcin Ozkan,Ms.Filiz Unsal
On the use of Monetary and Macroprudential Policies for Small Open Economies Book PDF

Author : Mr.F. Gulcin Ozkan,Ms.Filiz Unsal
Publisher : International Monetary Fund
Page : 34 pages
File Size : 50,7 Mb
Release : 2014-06-24
Category : Business & Economics
ISBN : 9781498375429

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On the use of Monetary and Macroprudential Policies for Small Open Economies by Mr.F. Gulcin Ozkan,Ms.Filiz Unsal Pdf

We explore optimal monetary and macroprudential policy rules for a small open economy. Delegating 'lean against the wind' squarely to macroprudential policy provides a more robust policy mix to shock uncertainty—(i) if macroprudential measures exist, there are no significant welfare gains from monetary policy reacting to credit growth under a financial shock; and (ii) monetary responses to financial markets could generate bigger welfare losses than macroprudential responses under different shocks. The source of outstanding liabilities also plays a role in the choice of policy instrument— macroprudential policies are particularly effective for emerging markets where foreign borrowing is sizeable.

Macroprudential Policy - An Organizing Framework - Background Paper

International Monetary Fund. Monetary and Capital Markets Department
Macroprudential Policy An Organizing Framework Background Paper Book PDF

Author : International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 33 pages
File Size : 42,7 Mb
Release : 2011-03-14
Category : Business & Economics
ISBN : 9781498339179

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Macroprudential Policy - An Organizing Framework - Background Paper by International Monetary Fund. Monetary and Capital Markets Department Pdf

MCM conducted a survey in December 2010 to take stock of international experiences with financial stability and the evolving macroprudential policy framework. The survey was designed to seek information in three broad areas: the institutional setup for macroprudential policy, the analytical approach to systemic risk monitoring, and the macroprudential policy toolkit. The survey was sent to 63 countries and the European Central Bank (ECB), including all countries in the G-20 and those subject to mandatory Financial Sector Assessment Programs (FSAPs). The target list is designed to cover a broad range of jurisdictions in all regions, but more weight is given to economies that are systemically important (see Annex for details). The response rate is 80 percent. This note provides a summary of the survey’s main findings.

Optimal Monetary and Macroprudential Policies Under Fire-Sale Externalities

Flora Lutz
Optimal Monetary and Macroprudential Policies Under Fire Sale Externalities Book PDF

Author : Flora Lutz
Publisher : International Monetary Fund
Page : 53 pages
File Size : 40,8 Mb
Release : 2023-03-10
Category : Business & Economics
ISBN : 9798400235191

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Optimal Monetary and Macroprudential Policies Under Fire-Sale Externalities by Flora Lutz Pdf

I provide an integrated analysis of monetary and macroprudential policies in a model economy featuring a financial friction and a nominal wage rigidity. In this set-up, the monetary authority faces a trade-off between macroeconomic and financial stability: While expansionary counter-cyclical monetary policy prevents involuntary unemployment, it also amplifies an inefficient reallocation of capital across sectors. The main contribution of the analysis is threefold: First it highlights a novel channel through which monetary policy can impact financial stability. Second, it shows that, by itself, monetary policy can significantly mitigate the wedge between the constrained efficient and the competitive allocation. Third, regardless of the availability of macroprudential tools, stabilizing demand is usually not optimal for monetary policy.

Effects of Monetary and Macroprudential Policies on Financial Conditions

Ms.Aleksandra Zdzienicka,Ms.Sally Chen,Federico Diaz Kalan,Stefan Laseen,Katsiaryna Svirydzenka
Effects of Monetary and Macroprudential Policies on Financial Conditions Book PDF

Author : Ms.Aleksandra Zdzienicka,Ms.Sally Chen,Federico Diaz Kalan,Stefan Laseen,Katsiaryna Svirydzenka
Publisher : International Monetary Fund
Page : 29 pages
File Size : 53,6 Mb
Release : 2015-12-31
Category : Business & Economics
ISBN : 9781513534992

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Effects of Monetary and Macroprudential Policies on Financial Conditions by Ms.Aleksandra Zdzienicka,Ms.Sally Chen,Federico Diaz Kalan,Stefan Laseen,Katsiaryna Svirydzenka Pdf

The Global Financial Crisis has reopened discussions on the role of the monetary policy in preserving financial stability. Determining whether monetary policy affects financial variables domestically—especially compared to the effects of macroprudential policies— and across borders, is crucial in this context. This paper looks into these issues using U.S. exogenous monetary policy shocks and macroprudential policy measures. Estimates indicate that monetary policy shocks have significant and persistent effects on financial conditions and can attenuate long-term financial instability. In contrast, the impact of macroprudential policy measures is generally more immediate but shorter-lasting. Also, while an exogenous increase in U.S. monetary policy rates tends to reduce credit and house prices in other countries—with the effects varying with country-specific characteristics—an increase driven by improved U.S. economic conditions tends to have the opposite effect. Finally, we do not find evidence of cross-border spillover effects associated with U.S. macroprudential policies.

Monetary and Macroprudential Policy Coordination Among Multiple Equilibria

Mr.Itai Agur
Monetary and Macroprudential Policy Coordination Among Multiple Equilibria Book PDF

Author : Mr.Itai Agur
Publisher : International Monetary Fund
Page : 33 pages
File Size : 45,5 Mb
Release : 2018-11-02
Category : Business & Economics
ISBN : 9781484380642

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Monetary and Macroprudential Policy Coordination Among Multiple Equilibria by Mr.Itai Agur Pdf

The notion of a tradeoff between output and financial stabilization is based on monetary-macroprudential models with unique equilibria. Using a game theory setup, this paper shows that multiple equilibria lead to qualitatively different results. Monetary and macroprudential authorities have tools that impose externalities on each other's objectives. One of the tools (macroprudential) is coarse, while the other (monetary policy) is unconstrained. We find that this asymmetry always leads to multiple equilibria, and show that under economically relevant conditions the authorities prefer different equilibria. Giving the unconstrained authority a weight on "helping" the constrained authority ("leaning against the wind") now has unexpected effects. The relation between this weight and the difficulty of coordinating is hump-shaped, and therefore a small degree of leaning worsens outcomes on both authorities' objectives.

Will Macroprudential Policy Counteract Monetary Policy’s Effects on Financial Stability?

Mr. Itai Agur
Will Macroprudential Policy Counteract Monetary Policy s Effects on Financial Stability Book PDF

Author : Mr. Itai Agur
Publisher : International Monetary Fund
Page : 23 pages
File Size : 51,8 Mb
Release : 2015-12-29
Category : Business & Economics
ISBN : 9781498345378

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Will Macroprudential Policy Counteract Monetary Policy’s Effects on Financial Stability? by Mr. Itai Agur Pdf

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. We 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.