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The Interaction Between Monetary Policy and Macroprudential Policy

Nielsen, Glenn LU (2019) NEKP01 20191
Department of Economics
Abstract
The latest global financial crisis ignited the debate on whether the role of monetary policy's main objective, price stability, is enough to achieve financial stability. It also sparked an interest of new policy measures that directly targets the financial system, such as macroprudential policies. In this study, we empirically investigate how monetary and macroprudential policies interact to affect macroeconomic and financial stability. Using structural panel vector autoregressions for 11 OECD countries over the 1999Q1 to 2016Q4 period, we show that there is a considerable interaction between the two economic policies. Specifically, the results suggest that while monetary policy have effects on the real economy, it also affects financial... (More)
The latest global financial crisis ignited the debate on whether the role of monetary policy's main objective, price stability, is enough to achieve financial stability. It also sparked an interest of new policy measures that directly targets the financial system, such as macroprudential policies. In this study, we empirically investigate how monetary and macroprudential policies interact to affect macroeconomic and financial stability. Using structural panel vector autoregressions for 11 OECD countries over the 1999Q1 to 2016Q4 period, we show that there is a considerable interaction between the two economic policies. Specifically, the results suggest that while monetary policy have effects on the real economy, it also affects financial conditions such as credit and house price growth. Similarly, macroprudential policy affects credit growth but have effects on the price level. Given the similar effect, authorities should act in a coordinated manner when deciding on monetary and macroprudential policies. (Less)
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author
Nielsen, Glenn LU
supervisor
organization
course
NEKP01 20191
year
type
H2 - Master's Degree (Two Years)
subject
keywords
monetary policy, macroprudential policy, macroeconomic stability, financial stability, panel VAR
language
English
id
8982004
date added to LUP
2019-08-08 10:24:37
date last changed
2019-08-08 10:24:37
@misc{8982004,
  abstract     = {The latest global financial crisis ignited the debate on whether the role of monetary policy's main objective, price stability, is enough to achieve financial stability. It also sparked an interest of new policy measures that directly targets the financial system, such as macroprudential policies. In this study, we empirically investigate how monetary and macroprudential policies interact to affect macroeconomic and financial stability. Using structural panel vector autoregressions for 11 OECD countries over the 1999Q1 to 2016Q4 period, we show that there is a considerable interaction between the two economic policies. Specifically, the results suggest that while monetary policy have effects on the real economy, it also affects financial conditions such as credit and house price growth. Similarly, macroprudential policy affects credit growth but have effects on the price level. Given the similar effect, authorities should act in a coordinated manner when deciding on monetary and macroprudential policies.},
  author       = {Nielsen, Glenn},
  keyword      = {monetary policy,macroprudential policy,macroeconomic stability,financial stability,panel VAR},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Interaction Between Monetary Policy and Macroprudential Policy},
  year         = {2019},
}