Effects of Monetary and Macroprudential Policies—Evidence from Four Inflation Targeting Economies

We examine the effects of monetary and macroprudential policies in the Asia‐Pacific region, where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability. Using structural panel vector autoregressions that identify both monetary and macroprudential policy actions, we show that tighter macroprudential policies used to contain credit growth also have a significant negative impact on macroeconomic aggregates such as real GDP and the price level. The similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times. However, they could also create challenges for policymakers, especially during times when low inflation coincides with buoyant credit growth.     

Macroprudential regulation,credit spreads and the role of monetary policy

We study the macroprudential roles of bank capital regulation and monetary policy in a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs. These frictions induce financial accelerator mechanisms and motivate the examination of a macroprudential toolkit. Following credit shocks, countercyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability. For supply shocks, combining macroprudential regulation with a stronger anti-inflationary policy stance is optimal. The findings emphasize the importance of the Basel III accords in alleviating the output-inflation trade-off faced by central banks, and cast doubt on the desirability of conventional (and unconventional) Taylor rules during periods of financial distress.     

货币、财政和宏观审慎政策的协调搭配研究

本文通过构建包含多部门和多元宏观政策的DSGE模型,对货币政策、财政政策和宏观审慎政策的最优反应规则及其协调组合问题进行了分析。分析结果显示:(1)从社会福利最大化的角度,货币政策可继续盯住通胀和产出的稳定,政府支出和税收政策可分别重点盯住产出稳定和债务稳定,而宏观审慎政策则可重点关注以信贷利差和信贷波动为代表的关键金融变量;(2)货币政策、财政政策和宏观审慎政策,通过合理的搭配和组合使用,能比任何单一政策工具都具有更好的经济金融稳定效应;反之,政策之间的不协调将显著削弱彼此的调控效应,加大经济和金融波动,从而导致显著的社会福利损失;(3)从多种政策协调搭配产生“合力”的内在机制来看,财政政策主要通过增加对产出、通胀、就业和债务等变量的稳定效应,对货币政策产生额外助力,而宏观审慎政策则主要通过稳定金融体系和降低金融风险对货币政策产生助力。上述结论表明,在多种经济金融政策并存的情况下,基于良好设定的政策规则,同时加强政策各部门之间的协调合作,是确保多元政策产生积极合力的重要基础。     

Optimal Macroprudential Policies and House Prices in Korea

This article investigates the impacts of the macroprudential policy of limitation on credit growth in housing market on Korean economy to find empirical and theoretical implications. Empirical results based on VAR models show that macroprudential policies like LTV and DTI in Korea have significant and persistent effect on real household credit and real house price. This article further addresses implications of optimal macroprudential and monetary policy in Korea by employing a standard DSGE model. The results suggest that the time-varying macroprudential policy responding to the borrower’s debt to income ratio is most effective in stabilizing household debt among the macroprudential policy rules considered, but produces a moderate downturn of the economy.     

Monetary and financial stability in the euro area: Pro-cyclicality versus trade-off

This paper investigates the nexus between monetary stability and financial stability. We examine, in the experience of EMU between 1994 and 2008, first, the response of the term structure of interest rates, share prices, exchange rates, property price inflation and the deposit–loan ratio of the banking sector (our proxies for financial stability) to changes in the consumer price level and ECB policy rate (our proxies for monetary stability); second, whether and to what extent lower inflation has caused share price stability and how ECB policy rate has reacted to inflation. Using a sign-restriction-based VAR approach, we find that there is a pro-cyclical relationship between monetary and financial stability in the long-run. With a positive inflation shock, we find on average a 2% estimated decline in share prices. This suggests that the interest rate instrument used for inflation targeting is conducive to financial stability.     

对货币政策和宏观审慎政策双支柱调控框架内在逻辑的思考

本轮国际金融危机以来,金融稳定在中央银行政策目标中的重要性再次得到强化。随着具有顺周期波动特征的金融市场和金融资产规模显著增大,金融管理政策需要更加关注金融稳定和系统性风险问题,货币稳定和金融稳定“双目标”的重要性凸显出来。政策目标的变化相应要求优化和完善政策工具箱,需要健全宏观审慎政策框架作为应对系统性风险的工具,并与货币政策相互配合,形成由货币政策和宏观审慎政策“双支柱”支撑起“双目标”的基本框架,共同维护好货币稳定和金融稳定。在此框架中,货币政策和宏观审慎政策都不可或缺,须相互补充,形成合力,产生“一加一大于二”的政策效应增进效果。健全货币政策和宏观审慎政策双支柱调控框架,有利于把经济周期和金融周期更好地结合起来,把维护经济稳定与促进金融稳定更好地结合起来。下一阶段应进一步健全宏观审慎政策框架,并完善货币政策和宏观审慎政策协调配合的体制机制。     

Optimal macroprudential policy and rational bubbles

We provide a microfounded framework for the welfare analysis of macroprudential policy within a model of rational bubbles. For this, we posit an overlapping generation model where productivity and credit supply are subject to random shocks. We find that when real interest rates are lower than the rate of growth, credit financed bubbles may be welfare improving because of their role as a buffer in channeling excessive credit supply and inefficient investment at the firms’ level, but their sudden price decrease may cause a systemic crisis. Therefore, a well designed macroprudential policy plays a key role in improving efficiency while preserving financial stability. Our theoretical framework allows us to compare the efficiency of alternative macroprudential policies. Contrarily to conventional wisdom, we show that macroprudential policy (i) may be efficient even in the absence of systemic risk, (ii) has to be contingent on productivity shocks and (iii) must be contingent upon the level of real interest rates.     

Euro area banking and monetary policy shocks in the QE era

This paper assesses the effects of monetary policy shocks on the macroeconomy and the euro area banking sector after the global financial crisis. First, financial risk-return indicators of the banking sector based on a compound option-based structural credit risk model are embedded in a large macro-financial quarterly database covering the period 2008Q4–2019Q4. Second, a SFAVAR identifies and estimates the shocks’ responses relating them to the endogenous build-up of banks’ vulnerabilities which are consistent with the internally coherent structure of the credit risk model. By introducing structure in the understanding of banks’ asset-liability management behavior following monetary policy shocks, the research strategy contributes to disentangling results that are often mixed in the empirical literature. The study finds that unconventional monetary policy, in particular the Asset Purchase Program of the European Central Bank, seems to have been more successful than conventional monetary policy in raising output and inflation. The desired boost to bank lending has been muted and loan cyclicality has varied across countries and loan types. The performance of the banking sector following monetary policy shocks can be characterized by a drop in expected return on equity and assets, a relaxation of lending conditions and increased correlation between banks’ assets return and the market return, a mechanism pointing to enhanced risk-taking. While banks’ probabilities of default fall following monetary policy shocks, the price of risk increases. Banks’ net worth rises via higher market capitalization and implied assets value together with lower volatility, despite often incurring more debt. Risk-taking in the banking sector may pose a risk to financial stability, especially if its effects on banks’ vulnerability spread and increase systemic risk. The unintended endogenous build-up of macro-financial vulnerabilities may need to become part of monetary policymaking.     

Monetary policy games,financial instability and incomplete information

In the aftermath of the recent global financial crisis, monetary authorities, while pursuing traditional objectives, such as the control of inflation, are also eager to promote financial stability. In this paper, we model the strategic interaction of the central bank and the financial sector and explore a simple monetary policy game with perceived substantial risks to financial stability, where the central bank can be of two types, one pursuing strict inflation-targeting and the other concerned with affecting the expectations formed by the financial sector participants; however, the financial sector is unsure which, due to incomplete information. The conclusion is that for small shocks to inflation there is a pooling equilibrium, whereas for larger shocks there is separation. In the latter case, the central bank that has an explicit financial stability concern is willing to exercise more muted control to inflation in order to reinforce the safety of the financial sector.     

宏观审慎政策的国际协调问题研究--基于我国的DSGE模拟分析

本文在两国模型的DSGE框架下引入宏观审慎政策监管机制,把金融摩擦、国际资本流动和宏观审慎政策纳入同一个一般均衡分析框架。通过国际贸易和国际资本流动机制,考察宏观审慎政策的国际影响机制。基于我国的模拟分析结果表明,第一,对于我国来说,宏观审慎政策的国际合作不仅能够有效地应对国内经济冲击,也有助于抵御外部经济冲击。第二,我国推动构建国际宏观审慎政策长效合作机制,有助于积极应对国际资本流动,促进我国资本市场进一步开放。第三,我国宏观审慎政策存在国际溢出效应,但是对其他国家的影响并不明显。     

货币政策与宏观审慎政策的协调

本文在梳理学术文献和国际经验基础上,讨论了货币政策与宏观审慎政策之间的潜在冲突和协调机制。国际文献的初步结论是,为了同时实现价格稳定和金融稳定目标,大部分情况下需要货币政策与宏观审慎政策反向操作(由于政策的替代性),但有时也需要两者同向操作(由于政策的互补性),最优政策组合取决于宏观冲击的类别和风险的来源。本文认为,选择最优组合是一个复杂的理论和实证问题,除了冲击类别和风险来源外,不同的金融体制和经济周期阶段也会影响选择结果。因此,货币政策当局与宏观审慎当局之间需要建立有效的协调机制,并加强对货币政策和宏观审慎政策“溢出效应”的分析能力。基于上述理论,针对我国“双支柱”决策的现状和问题提出如下改革建议:一是从法律上明确中央银行的金融稳定职责。二是建立在同一框架内分析货币政策与宏观审慎政策的方法和工具。三是将金融监管部门的主要宏观审慎政策决策权集中至中央银行。四是建立货币政策与宏观审慎政策的协调流程与机制。     

Flexible inflation targeting and financial stability: Is it enough to stabilize inflation and output?

We investigate empirically whether a central bank can promote financial stability by stabilizing inflation and output, and whether additional stabilization of asset prices and credit growth would enhance financial stability in particular. We employ an econometric model of the Norwegian economy to investigate the performance of simple interest rate rules that allow a response to asset prices and credit growth, in addition to inflation and output. We find that output stabilization tends to improve financial stability. Additional stabilization of house prices, equity prices and/or credit growth enhances stability in both inflation and output, but has mixed effects on financial stability. In general, financial stability as measured by e.g., asset price volatility improves, while financial stability measured by indicators that depend directly on interest rates deteriorates, mainly because of higher interest rate volatility owing to a more active monetary policy.     

The Interaction of Monetary and Macroprudential Policies

I analyze a New Keynesian dynamic stochastic general equilibrium (DSGE) model where the financing of productive investment is affected by a moral hazard problem. I solve for jointly Ramsey‐optimal monetary and macroprudential policies. I find that when a financial friction is present in addition to the standard nominal friction, the optimal policy can replicate the first‐best allocation if the social planner can conduct both monetary and macroprudential policy. Using monetary policy alone is not enough: a policy trade‐off between stabilizing inflation and output gap emerges. When policy follows simple rules, the source of fluctuations is relevant for the choice of the appropriate policy mix.     

房价波动、金融稳定与最优宏观审慎政策

本文通过构建包含家庭住房抵押借款摩擦和银行贷款摩擦的动态随机一般均衡模型,重点考察了异质性冲击下房价波动对金融稳定的影响。研究发现,房价上涨会导致银行风险溢价及杠杆率显著上升,进而加剧金融体系的内在不稳定。为降低房价波动及维护金融稳定,选取两类宏观审慎政策工具进行逆周期调控实验,结果表明,在住房需求冲击下,金融管理部门应选取贷款价值比政策,且应对房贷积极调控,而对房价进行中性调控。在最终产品部门生产率冲击、房地产部门生产率冲击及跨期偏好冲击下,应选取资本充足率政策,但对房贷和房价调控力度的把握则存在差异。本研究为厘清房价波动对金融稳定的动态传导机制,以及金融管理部门如何选取宏观审慎政策工具以稳定房价并降低系统性金融风险提供了启示。     

Monetary policy and financial stability in a banking economy: Transmission mechanism and policy tradeoffs

The 2008 global financial crisis demonstrated that monetary policy and financial stability policy are more highly interrelated than previously thought. This paper analyzes the interactions between these policies using a non-linear overlapping-generations model with financial frictions in the form of banking financial intermediation. The paper embeds negative externalities due to contagion effects in physical investments which creates the need for financial stability policy. We show how the monetary policy transmission mechanism depends on financial stability policy tools as well as on regulatory and institutional constraints.We find policy tradeoffs in trying to accomplish both monetary and financial stability targets. The central bank must take these tradeoffs into account when selecting the tools in its policy toolbox. Another important finding is the interchangeability of price stability and financial stability policy tools.     

Institutional Arrangements and Inflation Bias: A Dynamic Heterogeneous Panel Approach

The paper investigates whether the institutional arrangements that determine the conduct of monetary and prudential policies influence policymakers' actions in pursuing their designated mandates. Employing recently developed dynamic heterogeneous panel methods and using data for 25 industrialized countries from 1960 to 2018, we empirically assess whether central banks' main objective of inflation stability is compromised when assigned with both policy mandates manifested as inflation bias. Our results show that, once we appropriately control for relevant policy and institutional factors, the separation of macroprudential regulation and monetary policy does not have a significant effect on inflation outcomes.     

Capital controls and optimal Chinese monetary policy

China׳s external policies, including capital controls, managed exchange rates, and sterilized interventions, constrain its monetary policy options for maintaining macroeconomic stability following external shocks. We study optimal monetary policy in a dynamic stochastic general equilibrium (DSGE) model that incorporates these “Chinese characteristics”. The model highlights a monetary policy tradeoff between domestic price stability and costly sterilization. The same DSGE framework allows us to evaluate the welfare implications of alternative liberalization policies. Capital account and exchange rate liberalization would have allowed the Chinese central bank to better stabilize the external shocks experienced during the global financial crisis.     

“双支柱”调控、政策协调搭配与宏观稳定效应

本文通过构建包含金融部门和“双支柱”调控政策的DSGE模型,系统考察了货币政策和宏观审慎政策的组合在不同经济金融冲击下的宏观经济和金融稳定效应。相关分析得出了三个基本结论:一是纳入宏观审慎政策的“双支柱”调控框架确实比单一使用货币政策具有相对更好的经济和金融稳定效应;二是“双支柱”调控框架在应对金融冲击时的稳定效应表现得更加明显,这说明宏观审慎政策确实是通过金融稳定渠道发挥作用的,从而与货币政策侧重实体经济(产出和通胀)的稳定效应形成了有效互补;三是不论是在价格型的货币政策工具下,还是在数量型的货币政策工具下,“双支柱”调控框架都较单一使用货币政策具有更好的经济金融稳定效应,这说明“双支柱”调控框架的有效性不依赖于货币政策工具的改变而改变,在具体的政策工具组合方面具有较为普遍的适用性。     

Monetary policy and macroprudential policy: Rivals or teammates?

This paper sheds some light on situations in which monetary and macroprudential policies may interact (and potentially get into conflict) and contributes to the discussion about the coordination of those policies. Using data for the Czech Republic and five euro area countries we show that monetary tightening has a negative impact on the credit-to-GDP ratio and the non-risk-weighted bank capital ratio (i.e. a positive impact on bank leverage), while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build-up of financial vulnerabilities, i.e. it boosts the credit cycle. On the other hand, the effect of the higher bank capital ratio is associated with some degree of uncertainty. For these and other reasons, coordination of the two policies is necessary to avoid an undesirable policy mix preventing effective achievement of the main objectives in the two policy areas.     

Risk management,nonlinearity and aggressiveness in monetary policy: The case of the US Fed

We contribute to the empirical literature on the risk-management approach to monetary policy by estimating regime switching models where the strength of the response of monetary policy to macroeconomic conditions depends on the level of risk associated with the inflation outlook and risk in financial markets. Using quarterly data for the Greenspan period we find that: (i) risk in the inflation outlook and in financial markets are a more powerful driver of monetary policy regime changes than variables typically suggested in the literature, such as the level of inflation and the output gap; (ii) estimation of regime switching models shows that the response of the US Fed to the inflation outlook is invariant across policy regimes; (iii) however, in periods of high economic risk monetary policy tends to respond more aggressively to the output gap and the degree of inertia tends to be lower than in normal circumstances; and (iv) the US Fed is estimated to have responded aggressively to the output gap in the late 1980s and beginning of the 1990s, and in the late 1990s and early 2000s. These results are consistent with Mishkin (2008)’s view that in periods of high economic risk monetary authorities should respond aggressively to changes in macroeconomic conditions while the degree of inertia should be lower than in normal circumstances.