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Fatima Silva
- 24 October 2024
- OCCASIONAL PAPER SERIES - No. 358Details
- Abstract
- In recent years, monetary policy and inflation considerations have been playing an increasingly important role for macroprudential authorities in their policy setting. This paper aims to assess the implications of high inflation and rising interest rates for macroprudential policy stance. The conceptual discussions and model-based analyses included in this paper reflect on the appropriate direction and impact of macroprudential policies at the different stages of financial and business cycles, given cross-country and banking system heterogeneities. In this context, a key objective of the paper is to assess to what extent the interaction between macroprudential and monetary policies differs, given the heterogeneity across euro area countries exposed to a homogenous monetary policy. While both policies are to a large extent complementary, monetary policy may generate relevant spillovers due to its impact on the financial cycle and, potentially, on financial stability. The paper argues that the recent focus of macroprudential policy on resilience, when banking sector conditions ensure no unwarranted procyclical effects of macroprudential tightening, suggests an expansion of the notion of “complementarity” with monetary policy. Specifically, with the build-up of resilience, macroprudential policy acts de facto countercyclically, supporting monetary policy in its pursuit of price stability. In this regard, the paper stresses that the source of the inflationary shock (supply versus demand side) and the monetary environment primarily affect the intensity, speed and extent of buffer build-up or release within each stage of the financial cycle while affecting borrower-based measures in their bindingness.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 15 March 2023
- OCCASIONAL PAPER SERIES - No. 310Details
- Abstract
- Macroprudential policies since the global financial crisis have been central to safeguarding financial stability. Despite the increasing use of multiple policy instruments, a detailed understanding of interactions among them is still needed to assess how instrument combinations can enhance the effectiveness of macroprudential action. This paper proposes a conceptual framework for informing the choice of combinations of macroprudential instruments, looking at the role of micro and macroeconomic transmission channels, interactions across policy objectives, the importance of country specificities and linkages with other macroeconomic or supervisory policies. It also reviews considerations related to circumvention, leakages, time of activation and communication of policies, all of which may affect the desirability of different combinations of macroprudential instruments. The paper also discusses a possible operational use of combinations of macroprudential instruments to address selected risks and provides a rich analysis of instrument interactions within the categories of borrower-based and, respectively, capital-based measures. The paper concludes that the combinations of capital and borrower-based instruments ensures a comprehensive coverage of different systemic risks and entail important synergies.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation