Macroprudential policies in a low interest-rate environment

Rubio, Margarita; Yao, Fang

Abstract

In this paper, we analyze the use of macroprudential policies in a low interest rate environment, where an occasionally binding zero lower bound (ZLB) constraint gives rise to aggregate demand externalities. We study this issue by using a dynamic stochastic general equilibrium (DSGE) model with financial frictions and a monetary policy rule that is subject to the ZLB. We find that, in a low interest rate environment, the occasionally binding ZLB creates additional scope for macroprudential intervention. When the interest rate is high and the two policies can perfectly coordinate, the optimal policy prescriptions behave as if they were independent. This is, however, no more the case, when the interest rate is low and/or when monetary policy and macroprudential policy cannot be perfectly coordinating. This more complex policy environment calls for more policy coordination.

Citation

Rubio, M., & Yao, F. (2020). Macroprudential policies in a low interest-rate environment. Journal of Money, Credit and Banking, 52(6), 1565-1591. https://doi.org/10.1111/jmcb.12662

• Journal Article Type: Article
• Acceptance Date: Apr 22, 2019
• Online Publication Date: Oct 7, 2019
• Publication Date: 2020-09
• Deposit Date: Apr 24, 2019
• Publicly Available Date: Oct 8, 2021
• Journal: Journal of Money, Credit and Banking
• Print ISSN: 0022-2879
• Electronic ISSN: 1538-4616
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 52
• Issue: 6
• Pages: 1565-1591
• DOI: https://doi.org/10.1111/jmcb.12662
• Keywords: Economics and Econometrics; Accounting; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/1837491
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/jmcb.12662
• Additional Information: This is the peer reviewed version of the following article: RUBIO, M. and YAO, F. (2019), Macroprudential Policies in a Low Interest Rate Environment. Journal of Money, Credit and Banking, which has been published in final form at https://doi.org/10.1111/jmcb.12662. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions