Monetary and Macroprudential Policy Rules in a Model with House Price Booms

By P. Kannan, Pau Rabanal, Alasdair M. Scott. Social Science Research Network, 2009

306 citations recorded by the source corpus.

Using a dynamic stochastic general equilibrium (DSGE) model with housing, this paper shows that strong monetary reactions to accelerator mechanisms that push up credit growth and house prices can help macroeconomic stability. In addition, using a macroprudential instrument specifically designed to dampen credit market cycles would also provide stabilization benefits when an economy faces financial sector or housing demand shocks. However, the optimal macroprudential rule under productivity shocks is to not intervene. Therefore, it is crucial to understand the source of house price booms for the design of monetary and macroprudential policy.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/3255927ae51f2a48afca0091bea91f88dfb9e5c3

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. M. Rubio
2. J. Carrasco-Gallego
3. Dominic Quint
4. Pau Rabanal
5. P. Gelain
6. P. Ilbas
7. Federico Ravenna

Citations in the corpus

• Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area (2013, background): “We nd that as the standard deviation of the volatility shocks increases, the optimal response of the macroprudential instrument also increases, in line with the results found by Kannan, Rabanal, and Scott (2009).”
• Reserve Requirements for Price and Financial Stability - When are They Effective? (2012, unknown): “More generally, our study also contributes to the recent literature that analyzes the interaction of monetary and macroprudential policies (Bean et al, 2010, Cecchetti and Kohler, 2010, Cecchetti and Li, 2005, Kannan et al., 2009, Darraq Paries et al., 2010).”
• Should Monetary Policy Lean Against the Wind? An Analysis Based on a DSGE Model with Banking (2013, unknown): “…channels at work; Section 4 describes the simulations of a technology 4Other papers have studied the link between macroprudential and monetary policies and the importance of co-operation between the central bank and the supervisory authority (Kannan et al., 2012 and Angelini et al., 2011).”
• What do we know about the effects of macroprudential policy (2018, unknown): “The literature on the interaction between macroprudential policy and monetary policy is in its infancy, including for example papers of Bean et al. (2010), Angeloni and Faia (2009), Beau et al. (2012), Kannan et al. (2012), and is discussed in Galati and Moessner (2013).”
• Macroprudential and monetary policies: Implications for financial stability and welfare (2014, methodology): “m=0 m s logCs;t+m + j logHs;t+m (Ns;t+m) ; (23)”