Macroprudential and monetary policy rules: a welfare analysis

Rubio, Margarita; Carrasco-Gallego, Jos� A.

Abstract

This paper studies the interaction between macroprudential and monetary policies, using a DSGE model with a housing market and collateral constraints. Monetary policy follows a standard Taylor rule for the interest rate. The macroprudential authority implements a Taylor-type rule for the loan-to-value, ratio reacting to output and house prices. Results show that introducing the macroprudential rule or extending the interest-rate rule to respond to house prices increases welfare, since it enhances financial stability. However, for the optimal policy mix, when both policies act together, monetary policy should ensure price stability while the macroprudential authority should safeguard financial stability.

Citation

Rubio, M., & Carrasco-Gallego, J. A. (2015). Macroprudential and monetary policy rules: a welfare analysis. Manchester School, 83(2), https://doi.org/10.1111/manc.12078

• Journal Article Type: Article
• Publication Date: Jan 2, 2015
• Deposit Date: Sep 8, 2015
• Publicly Available Date: Sep 8, 2015
• Journal: Manchester School
• Print ISSN: 1463-6786
• Electronic ISSN: 1467-9957
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 83
• Issue: 2
• DOI: https://doi.org/10.1111/manc.12078
• Keywords: Macroprudential, Monetary Policy, Collateral Constraint, Credit, Loan-to-Value, Financial Stability, House Prices
• Public URL: https://nottingham-repository.worktribe.com/output/743896
• Publisher URL: http://onlinelibrary.wiley.com/doi/10.1111/manc.12078/full
• Additional Information: This is the peer reviewed version of the following article: Rubio, M. and Carrasco-Gallego, J. A. (2015), Macroprudential and Monetary Policy Rules: a Welfare Analysis. The Manchester School, 83: 127–152. doi: 10.1111/manc.12078 which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1111/manc.12078/full; This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.