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Macroprudential and monetary policy rules: a welfare analysis

Rubio, Margarita; Carrasco-Gallego, José A.

Authors

José A. Carrasco-Gallego jose.carrasco-gallego@port.ac.uk



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.

Journal Article Type Article
Publication Date Jan 2, 2015
Journal Manchester School
Print ISSN 1463-6786
Electronic ISSN 1463-6786
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 83
Issue 2
APA6 Citation Rubio, M., & Carrasco-Gallego, J. A. (2015). Macroprudential and monetary policy rules: a welfare analysis. Manchester School, 83(2), doi:10.1111/manc.12078
DOI https://doi.org/10.1111/manc.12078
Keywords Macroprudential, Monetary Policy, Collateral Constraint, Credit, Loan-to-Value, Financial Stability, House Prices
Publisher URL http://onlinelibrary.wiley.com/doi/10.1111/manc.12078/full
Copyright Statement Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc/4.0
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.wi...10.1111/manc.12078/full
This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc/4.0





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