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Coordinating monetary and financial regulatory policies

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  • Van der Ghote, Alejandro

Abstract

How to conduct macro-prudential regulation? How to coordinate monetary policy and macro-prudential policy? To address these questions, I develop a continuous-time New Keynesian economy in which a financial intermediary sector is subject to a leverage constraint. Coordination between monetary and macro-prudential policies helps to reduce the risk of entering into a financial crisis and speeds up exit from the crisis. The downside of coordination is variability in inflation and in the employment gap. JEL Classification: E31, E32, E44, E52, E61, G01

Suggested Citation

  • Van der Ghote, Alejandro, 2018. "Coordinating monetary and financial regulatory policies," Working Paper Series 2155, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20182155
    Note: 2828013
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    References listed on IDEAS

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    Cited by:

    1. Julio A. Carrillo & Enrique G. Mendoza & Victoria Nuguer & Jessica Roldán-Peña, 2021. "Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 37-73, July.
    2. Melchisedek Joslem Ngambou Djatche, 2022. "Monetary policy, prudential policy and bank's risk‐taking: A literature review," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1559-1590, December.
    3. Mendicino, Caterina & Nikolov, Kalin & Suarez, Javier & Supera, Dominik, 2020. "Bank capital in the short and in the long run," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 64-79.
    4. Hassan Dargahi & Mehdi Hadian, 2022. "Oil shocks, financial stability and implementing macroeconomics and macro‐prudential policies in an oil‐exporting economy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2481-2496, April.
    5. Mark Gertler & Nobuhiro Kiyotaki & Andrea Prestipino, 2020. "Credit Booms, Financial Crises, and Macroprudential Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 8-33, August.
    6. Agur, Itai & Demertzis, Maria, 2019. "Will macroprudential policy counteract monetary policy’s effects on financial stability?," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 65-75.
    7. Lang, Jan Hannes & Menno, Dominik, 2023. "The state-dependent impact of changes in bank capital requirements," Working Paper Series 2828, European Central Bank.
    8. Lorenzo Menna & Martin Tobal, 2018. "Financial and price stability in emerging markets: the role of the interest rate," BIS Working Papers 717, Bank for International Settlements.
    9. Cozzi, Gabriele & Darracq Pariès, Matthieu & Karadi, Peter & Körner, Jenny & Kok, Christoffer & Mazelis, Falk & Nikolov, Kalin & Rancoita, Elena & Van der Ghote, Alejandro & Weber, Julien, 2020. "Macroprudential policy measures: macroeconomic impact and interaction with monetary policy," Working Paper Series 2376, European Central Bank.
    10. Victoria Nuguer & Jessica Roldan-Pena & Enrique Mendoza & Julio Carrillo, 2016. "When the Central Bank Meets the Financial Authority: Strategic Interactions and Institutional Design," 2016 Meeting Papers 1461, Society for Economic Dynamics.
    11. Ampudia, Miguel & Beck, Thorsten & Beyer, Andreas & Colliard, Jean-Edouard & Leonello, Agnese & Maddaloni, Angela & Marqués-Ibáñez, David, 2019. "The architecture of supervision," Working Paper Series 2287, European Central Bank.
    12. William Chen & Gregory Phelan, 2023. "Should Monetary Policy Target Financial Stability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 181-200, July.
    13. Mădălina-Gabriela ANGHEL & Constantin ANGHELACHE & Ana CARP, 2017. "The main correlations between the monetary-banking indicators," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(611), S), pages 99-110, Summer.
    14. Andrea Ferrero & Richard Harrison & Benjamin Nelson, 2024. "House Price Dynamics, Optimal LTV Limits and the Liquidity Trap," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(2), pages 940-971.
    15. Agur, Itai, 2019. "Monetary and macroprudential policy coordination among multiple equilibria," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 192-209.
    16. Hiebert, Paul & Jaccard, Ivan & Schüler, Yves, 2018. "Contrasting financial and business cycles: Stylized facts and candidate explanations," Journal of Financial Stability, Elsevier, vol. 38(C), pages 72-80.
    17. Tobal, Martin & Menna, Lorenzo, 2020. "Monetary policy and financial stability in emerging market economies," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).
    18. Van der Ghote, Alejandro, 2019. "Interactions between monetary and macroprudential policies," Research Bulletin, European Central Bank, vol. 56.

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    More about this item

    Keywords

    macro-prudential policy; monetary policy; policy coordination;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G01 - Financial Economics - - General - - - Financial Crises

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