Macroprudential and monetary policy rules: a welfare analysis

Margarita Rubio; José A. Carrasco-gallego

doi:10.1111/manc.12078

Macroprudential and monetary policy rules: a welfare analysis

Margarita Rubio
, José A. Carrasco-gallego

University of Portsmouth

University of Nottingham

Research output: Contribution to journal › Article › peer-review

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Abstract

This paper studies the interaction between macroprudential and monetary policies using a dynamic stochastic general equilibrium model. The model features a housing market. There are borrowers, who need collateral to obtain loans, and savers. Monetary policy is conducted following a Taylor rule for the interest rate. The macroprudential policy is represented by a Taylor-type rule for the loan-to- value ratio reacting to output and house prices. Results show that introducing the macroprudential rule or extending the interest rate rule to respond to house prices increases welfare, since it enhances financial stability. However, when we evaluate the optimal policy mix, we and that when both policies act together in a coordinated way, monetary policy should focus on ensuring price stability while the macroprudential authority should care about financial stability.
rule or extending the interest rate rule to respond to house prices increases welfare, since it enhances
…nancial stability. However, when we evaluate the optimal policy mix, we …nd that when both policies
act together in a coordinated way, monetary policy should focus on ensuring price stability while the
macroprudential authority should care about …nancial stability.

Original language	English
Pages (from-to)	127-152
Number of pages	26
Journal	The Manchester School
Volume	83
Issue number	2
Early online date	2 Jan 2015
DOIs	https://doi.org/10.1111/manc.12078
Publication status	Published - 1 Mar 2015

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 10 Reduced Inequalities
SDG 11 Sustainable Cities and Communities
SDG 17 Partnerships for the Goals

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10.1111/manc.12078

CARRASCO-GALLEGO)2015_cright_MS_Macroprudential and Monetary Policy Rules - A Welfare Analysis
This is the accepted version of the following article: "Macroprudential and Monetary Policy Rules: A Welfare Analysis", (2015), Manchester School, 83(2), pp.127-152, ISSN: 1463-6786, DOI: 10.1111/manc.12078, which has been published in final form at http://doi.wiley.com/10.1111/manc.12078
Accepted author manuscript (Post-print), 235 KB

Cite this

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title = "Macroprudential and monetary policy rules: a welfare analysis",

abstract = "This paper studies the interaction between macroprudential and monetary policies using a dynamic stochastic general equilibrium model. The model features a housing market. There are borrowers, who need collateral to obtain loans, and savers. Monetary policy is conducted following a Taylor rule for the interest rate. The macroprudential policy is represented by a Taylor-type rule for the loan-to- value ratio reacting to output and house prices. Results show that introducing the macroprudential rule or extending the interest rate rule to respond to house prices increases welfare, since it enhances financial stability. However, when we evaluate the optimal policy mix, we and that when both policies act together in a coordinated way, monetary policy should focus on ensuring price stability while the macroprudential authority should care about financial stability. rule or extending the interest rate rule to respond to house prices increases welfare, since it enhances …nancial stability. However, when we evaluate the optimal policy mix, we …nd that when both policies act together in a coordinated way, monetary policy should focus on ensuring price stability while the macroprudential authority should care about …nancial stability.",

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N2 - This paper studies the interaction between macroprudential and monetary policies using a dynamic stochastic general equilibrium model. The model features a housing market. There are borrowers, who need collateral to obtain loans, and savers. Monetary policy is conducted following a Taylor rule for the interest rate. The macroprudential policy is represented by a Taylor-type rule for the loan-to- value ratio reacting to output and house prices. Results show that introducing the macroprudential rule or extending the interest rate rule to respond to house prices increases welfare, since it enhances financial stability. However, when we evaluate the optimal policy mix, we and that when both policies act together in a coordinated way, monetary policy should focus on ensuring price stability while the macroprudential authority should care about financial stability. rule or extending the interest rate rule to respond to house prices increases welfare, since it enhances …nancial stability. However, when we evaluate the optimal policy mix, we …nd that when both policies act together in a coordinated way, monetary policy should focus on ensuring price stability while the macroprudential authority should care about …nancial stability.

AB - This paper studies the interaction between macroprudential and monetary policies using a dynamic stochastic general equilibrium model. The model features a housing market. There are borrowers, who need collateral to obtain loans, and savers. Monetary policy is conducted following a Taylor rule for the interest rate. The macroprudential policy is represented by a Taylor-type rule for the loan-to- value ratio reacting to output and house prices. Results show that introducing the macroprudential rule or extending the interest rate rule to respond to house prices increases welfare, since it enhances financial stability. However, when we evaluate the optimal policy mix, we and that when both policies act together in a coordinated way, monetary policy should focus on ensuring price stability while the macroprudential authority should care about financial stability. rule or extending the interest rate rule to respond to house prices increases welfare, since it enhances …nancial stability. However, when we evaluate the optimal policy mix, we …nd that when both policies act together in a coordinated way, monetary policy should focus on ensuring price stability while the macroprudential authority should care about …nancial stability.

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Macroprudential and monetary policy rules: a welfare analysis

Abstract

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