Macroprudential and monetary policies: implications for financial stability and welfare
In this paper, we analyze the implications of macroprudential and monetary policies for business cycles, welfare, and financial stability. We consider a dynamic stochastic general equilibrium (DSGE) model with housing and collateral constraints. A macroprudential rule for the loan-to-value ratio (LT...
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| Format: | Article |
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Elsevier
2014
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| Online Access: | https://eprints.nottingham.ac.uk/29821/ |
| _version_ | 1848793859081895936 |
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| author | Rubio, Margarita Carrasco-Gallego, José A. |
| author_facet | Rubio, Margarita Carrasco-Gallego, José A. |
| author_sort | Rubio, Margarita |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | In this paper, we analyze the implications of macroprudential and monetary policies for business cycles, welfare, and financial stability. We consider a dynamic stochastic general equilibrium (DSGE) model with housing and collateral constraints. A macroprudential rule for the loan-to-value ratio (LTV), which responds to credit growth, interacts with a traditional Taylor rule for monetary policy. We compute the optimal parameters of these rules both when monetary and macroprudential policies act in a coordinated and in a non-coordinated way. We find that both policies acting together unambiguously improves the stability of the system. In both cases, this interaction is welfare improving for the society, especially in the case of the non-coordinated game. There is though a trade-off between borrowers and savers. However, borrowers can compensate the saver’s welfare loss View the MathML sourcela Kaldor–Hicks to achieve a Pareto-superior outcome. |
| first_indexed | 2025-11-14T19:06:59Z |
| format | Article |
| id | nottingham-29821 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T19:06:59Z |
| publishDate | 2014 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-298212020-05-04T16:45:22Z https://eprints.nottingham.ac.uk/29821/ Macroprudential and monetary policies: implications for financial stability and welfare Rubio, Margarita Carrasco-Gallego, José A. In this paper, we analyze the implications of macroprudential and monetary policies for business cycles, welfare, and financial stability. We consider a dynamic stochastic general equilibrium (DSGE) model with housing and collateral constraints. A macroprudential rule for the loan-to-value ratio (LTV), which responds to credit growth, interacts with a traditional Taylor rule for monetary policy. We compute the optimal parameters of these rules both when monetary and macroprudential policies act in a coordinated and in a non-coordinated way. We find that both policies acting together unambiguously improves the stability of the system. In both cases, this interaction is welfare improving for the society, especially in the case of the non-coordinated game. There is though a trade-off between borrowers and savers. However, borrowers can compensate the saver’s welfare loss View the MathML sourcela Kaldor–Hicks to achieve a Pareto-superior outcome. Elsevier 2014-03-06 Article PeerReviewed Rubio, Margarita and Carrasco-Gallego, José A. (2014) Macroprudential and monetary policies: implications for financial stability and welfare. Journal of Banking and Finance, 49 . pp. 326-336. ISSN 0378-4266 Macroprudential Monetary Policy Welfare Financial Stability Loan-to-Value Kaldor–Hicks Efficiency http://www.sciencedirect.com/science/article/pii/S0378426614000740 doi:10.1016/j.jbankfin.2014.02.012 doi:10.1016/j.jbankfin.2014.02.012 |
| spellingShingle | Macroprudential Monetary Policy Welfare Financial Stability Loan-to-Value Kaldor–Hicks Efficiency Rubio, Margarita Carrasco-Gallego, José A. Macroprudential and monetary policies: implications for financial stability and welfare |
| title | Macroprudential and monetary policies: implications for financial stability and welfare |
| title_full | Macroprudential and monetary policies: implications for financial stability and welfare |
| title_fullStr | Macroprudential and monetary policies: implications for financial stability and welfare |
| title_full_unstemmed | Macroprudential and monetary policies: implications for financial stability and welfare |
| title_short | Macroprudential and monetary policies: implications for financial stability and welfare |
| title_sort | macroprudential and monetary policies: implications for financial stability and welfare |
| topic | Macroprudential Monetary Policy Welfare Financial Stability Loan-to-Value Kaldor–Hicks Efficiency |
| url | https://eprints.nottingham.ac.uk/29821/ https://eprints.nottingham.ac.uk/29821/ https://eprints.nottingham.ac.uk/29821/ |