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Effects of Monetary and Macroprudential Policies—Evidence from Four Inflation Targeting Economies

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  • SOYOUNG KIM
  • AARON MEHROTRA

Abstract

We examine the effects of monetary and macroprudential policies in the Asia‐Pacific region, where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability. Using structural panel vector autoregressions that identify both monetary and macroprudential policy actions, we show that tighter macroprudential policies used to contain credit growth also have a significant negative impact on macroeconomic aggregates such as real GDP and the price level. The similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times. However, they could also create challenges for policymakers, especially during times when low inflation coincides with buoyant credit growth.

Suggested Citation

  • Soyoung Kim & Aaron Mehrotra, 2018. "Effects of Monetary and Macroprudential Policies—Evidence from Four Inflation Targeting Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(5), pages 967-992, August.
    • Handle: RePEc:wly:jmoncb:v:50:y:2018:i:5:p:967-992
    DOI: 10.1111/jmcb.12495
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