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  3. American Economic Journal: Macroeconomics
  4. January 2021
  5. Interactions and Coordination between Monetary and Macroprudential Policies

Interactions and Coordination between Monetary and Macroprudential Policies

  • Alejandro Van der Ghote
American Economic Journal: Macroeconomics
vol. 13, no. 1, January 2021
(pp. 1-34)
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Abstract

I study monetary and macroprudential policy intervention in a general equilibrium economy with recurrent boom-bust cycles. Recurrence causes forward-looking variables to also react to policy intervention during phases in which the intervention is inactive. Macroprudential policies that contain systemic risk in financial markets during booms, therefore, relax market-based funding constraints during busts, which helps mitigate the severity and shorten the duration of economic meltdowns. Contractionary monetary interventions during booms also have (latent) beneficial effects during busts. Coordination between the two policy instruments improves social welfare over standard, noncoordinated policy interventions, but improvement is moderate.

Citation

Van der Ghote, Alejandro. 2021. "Interactions and Coordination between Monetary and Macroprudential Policies." American Economic Journal: Macroeconomics, 13 (1): 1-34. DOI: 10.1257/mac.20190139

Additional Materials

JEL Classification

  • E32 Business Fluctuations; Cycles
  • E44 Financial Markets and the Macroeconomy
  • E52 Monetary Policy
  • E61 Policy Objectives; Policy Designs and Consistency; Policy Coordination
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