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"Policy mandates for macro-prudential and monetary policies in a new Keynesian framework"

Levine, PL and Lima, D (2015) "Policy mandates for macro-prudential and monetary policies in a new Keynesian framework" [Working Paper]

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Abstract

In the aftermath of the nancial crisis, the role of monetary policy and macro-prudential regulation in promoting nancial stability is under discussion. The old debate concerning whether monetary policy should respond to credit and asset price bubbles was revived, whereas macro-prudential regulation is being assessed as an alternative macroeconomic tool to deal with nancial imbalances. The paper explores both sides of the debate in a New Keynesian framework with nancial frictions by comparing the welfare and stabilisation impacts of distinct policy regimes. First, we investigate whether there is a welfare benet from monetary policy leaning against nancial instability. We show that monetary policy rules of this type perform better than conventional monetary rules. Second, by introducing macro-prudential regulation in the model, results from optimal policy analysis suggest also that there are welfare gains, even in the case in which monetary and macro-prudential authorities are independent and react to their own policy goal.

Item Type: Working Paper
Subjects : Economics
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
AuthorsEmailORCID
Levine, PLUNSPECIFIEDUNSPECIFIED
Lima, DUNSPECIFIEDUNSPECIFIED
Date : 1 April 2015
Funders : ESRC
Identification Number : 10.2866/603785
Grant Title : RES-062-23-2451
Copyright Disclaimer : © European Central Bank, 2015. All rights reserved. Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the authors. This paper can be downloaded without charge from www.ecb.europa.eu, from the Social Science Research Network electronic library at http://ssrn.com or from RePEc: Research Papers in Economics at https://ideas.repec.org/s/ecb/ecbwps.html. Information on all of the papers published in the ECB Working Paper Series can be found on the ECB’s website, http://www.ecb.europa.eu/pub/scientific/wps/date/html/index.en.html.
Uncontrolled Keywords : Monetary policy, macro-prudential policy, DSGE, financial frictions.
Depositing User : Symplectic Elements
Date Deposited : 19 Jul 2016 09:26
Last Modified : 19 Jul 2016 09:26
URI: http://epubs.surrey.ac.uk/id/eprint/811252

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