Optimal macroprudential regulation tools

2020 ◽  
Vol 26 (4) ◽  
pp. 774-795
Author(s):  
I.R. Ipatyev
Keyword(s):  
Monetary Policy ◽  
Financial Institutions ◽  
Policy Instruments ◽  
Financial Policy ◽  
Policy Options ◽  
Macroprudential Policy ◽  
Monetary Policies ◽  
Credit Cycles ◽  
Systemic Risks ◽  
Optimal Set

Subject. This article examines the hypothesis that microprudential and monetary policies are not able to provide measures to prevent excessive lending and guarantee the ability of financial institutions to cope with the growing credit bubble. Objectives. The article examines approaches to identifying viable macroprudential policy options and an optimal set of regulation instruments. Methods. For the study, I used a content analysis and generalization. Results. The article presents some results of the assessment of certain macroprudential requirement instruments. Conclusions. The study shows that some macroprudential policy tools can reduce systemic risks associated with credit cycles. Monetary policy alone is not able to effectively withstand the credit bubble risk. All financial policy instruments must be taken and considered together, as they work closely together.

scholarly journals On the Limits of Macroprudential Policy

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Marcin Kolasa
Keyword(s):  
Monetary Policy ◽  
Policy Instruments ◽  
New Keynesian ◽  
Output Volatility ◽  
Macroprudential Policy ◽  
Collateral Constraints ◽  
Keynesian Model ◽  
Additional Stabilization ◽  
The Interest Rate

AbstractThis paper studies how macroprudential policy tools applied to the housing market can complement the interest rate-based monetary policy in achieving one additional stabilization objective, defined as keeping either economic activity or credit at some exogenous (and possibly time-varying) levels. We show analytically in a canonical New Keynesian model with housing and collateral constraints that using the loan-to-value (LTV) ratio, tax on credit or tax on property as additional policy instruments does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and credit with monetary and macroprudential policy is possible only if the role of housing debt in the economy is sufficiently small. The identified limits to the considered policies are related to their predominantly intertemporal impact on decisions made by financially constrained agents, making them poor complements to monetary policy, which also operates at an intertemporal margin. These limits can be overcome if macroprudential policy is instead designed such that it sufficiently redistributes income between savers and borrowers.

scholarly journals Coordination Effects and Optimal Policy Choices of Macroprudential Policy and Monetary Policy

Complexity ◽  
2020 ◽  
Vol 2020 ◽  
pp. 1-11
Author(s):  
Haifeng Pan ◽  
Dingsheng Zhang
Keyword(s):  
Monetary Policy ◽  
Social Welfare ◽  
Optimal Policy ◽  
Real Estate Market ◽  
Macroprudential Policy ◽  
Monetary Policies ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Macroprudential Policies ◽  
Dynamic Stochastic

Considering three monetary policy rules, together with two endogenous macroprudential policies that are credit constraints (loan to value, LTV) for households and counter-cyclical capital (capital requirement ratio, CRR) for bankers, this paper establishes a dynamic stochastic general equilibrium (DSGE) model. Based on the welfare analysis of different combinations of macroprudential rules and monetary policy rules, this paper identifies the optimal policy combinations and analyzes the coordination effects between macroprudential policies and monetary policies. The results show that no matter what kind of monetary policy rules is implemented, the introduction of macroprudential rules has improved the level of total social welfare. In the optimal “two pillars” framework of monetary policies and macroprudential rules, the main objective of monetary policy is to stabilize price inflation, and the macroprudential policy to be implemented is the CRR macroprudential policy. This combination can effectively promote the stability of the real estate market, financial market, and macroeconomy, while maximizing the improvement of total social welfare.

Monetary Policy Operations of Central Banks in the E7 Economies

2020 ◽  
pp. 65-91
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Crucial Role ◽  
Policy Instruments ◽  
Active Role ◽  
Central Banks ◽  
Central Banking ◽  
Fiscal Policies ◽  
Monetary Policies ◽  
Sustainable Economic Growth

Both monetary and fiscal policies have a crucial role in the financial markets of the countries. In this framework, policies can be used for mainly two different purposes, which are contractionary and expansionary policies. Hence, it can be said that monetary policies play a key role especially for the emerging economies. The main reason is that these are the economies that aim to be a developed economy. In order to reach this objective, they aim to make investment to obtain sustainable economic growth. Similar to this aspect, this chapter aims to identify different monetary policy operations of the central banks. Thus, various monetary policy instruments are explained. After this issue, necessary information is given related to the central banking operations of E7 economies. As a result, it is defined that central banks of these countries play an active role especially during the recession period.

Macroprudential policy – closing the financial stability gap

2017 ◽  
Vol 25 (4) ◽  
pp. 334-359 ◽  
Author(s):  
Stephan Fahr ◽  
John Fell
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Relative Effectiveness ◽  
Policy Instruments ◽  
Price Stability ◽  
Macroprudential Policy ◽  
Content Type ◽  
Macroprudential Policies ◽  
Trade Offs ◽  
System Resilience

Purpose The global financial crisis demonstrated that monetary policy alone cannot ensure both price and financial stability. According to the Tinbergen (1952) rule, there was a gap in the policymakers’ toolkit for safeguarding financial stability, as the number of available policy instruments was insufficient relative to the number of policy objectives. That gap is now being closed through the creation of new macroprudential policy instruments. Both monetary policy and macroprudential policy have the capacity to influence both price and financial stability objectives. This paper develops a framework for determining how best to assign instruments to objectives. Design/methodology/approach Using a simplified New-Keynesian model, the authors examine two sets of policy trade-offs, the first concerning the relative effectiveness of monetary and macroprudential policy instruments in achieving price and financial stability objectives and the second concerning trade-offs between macroprudential policy instruments themselves. Findings This model shows that regardless of whether the objective is to enhance financial system resilience or to moderate the financial cycle, macroprudential policies are more effective than monetary policy. Likewise, monetary policy is more effective than macroprudential policy in achieving price stability. According to the Mundell (1962) principle of effective market classification, this implies that macroprudential policy instruments should be paired with financial stability objectives, and monetary policy instruments should be paired with the price stability objective. The authors also find a trade-off between the two sets of macroprudential policy instruments, which indicates that failure to moderate the financial cycle would require greater financial system resilience. Originality/value The main contribution of the paper is to establish – with the help of a model framework – the relative effectiveness of monetary and macroprudential policies in achieving price and financial stability objectives. By so doing, it provides a rationale for macroprudential policy and it shows how macroprudential policy can unburden monetary policy in leaning against the wind of financial imbalances.

scholarly journals Macroprudential policy and financial stability, role and tools

2020 ◽  
Vol 4 (4) ◽  
pp. 45-54
Author(s):  
Mehdi Bouchetara ◽  
Abdelkader Nassour ◽  
Sidi Eyih
Keyword(s):  
Financial Crisis ◽  
Financial Stability ◽  
Full Employment ◽  
Financial System ◽  
Policy Instruments ◽  
Banking Crises ◽  
Real Economy ◽  
Macroprudential Policy ◽  
Systemic Risks ◽  
The Impact

The aim of macroprudential policy is to ensure financial stability by avoiding the outbreak of banking crises, which have a dangerous effect on the economy. Is macroprudential policy effective in the face of banking crises and systemic risks? The macroprudential policy has received significant interest from policy-makers and researchers. A few developing countries were using macroprudential policy tools well before the 2008 financial crisis, but significant progress has been made thereafter in both emerging and industrialized economies to put in place specific institutional settings for macroprudential policy. The fundamental objective of macroprudential policy is to maintain the stability of the financial system by making it more resistant and preventing the risk build-up. The objective of this paper is to analyze the important role of macroprudential policy in ensuring overall financial stability. Since the financial crisis of 2008, macroprudential policy has been increasingly used across economies. These measures aim at smoothing financial cycles and thereby mitigating the impact on the real economy, thereby allowing monetary policy to focus on price stability and promote growth and full employment. Macroprudential policy instruments fall into two categories, depending on their purpose, namely, to prevent procyclicality or to enhance the resilience and soundness of the financial system against shocks. The first category of instruments is used to stop bubbles from forming and smooth cycles, i.e. to force the debt-equity of economic operators on an income basis to prevent unsustainable credit bubbles, or to require dynamic loss provisioning rules. The second category of macro-prudential policy is to improve the resilience to shocks, such as capital surcharges for systemic institutions or the requirement to hold liquid assets to cope with market panics, and to make the financial system less complex. Keywords: macroprudential policy, financial stability, tools and measures, systemic risks.

scholarly journals Urgensi Berdirinya Bank Sentral Syariah Di Indonesia

2020 ◽  
Vol 9 (2) ◽  
pp. 153-170
Author(s):  
Agus Pandoman
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Gold Standard ◽  
Islamic Finance ◽  
Financial Policy ◽  
Real Economy ◽  
Monetary Policies ◽  
Historical Approach ◽  
The Real ◽  
Basic Philosophy

Bank Indonesia has been established as a central bank that develops dual monetary policy. This paper identifies the challenges faced in Islamic financial policy that are different from other monetary policies. With a historical approach to law it can be concluded that there is still an opportunity for BI to develop Islamic finance in Indonesia by reinforcing its basic philosophy of returning to the real economy in the gold standard. Some suggestions for the implementation of the technical treatment of finance have been raised, but there is a need to accompany the implementation by stabilizing all Islamic-oriented central bank laws.

scholarly journals Fiscal and Monetary Policies in Nigeria: Key Aspects, Performance, and Policy Options

2018 ◽  
Vol 12 (2) ◽  
pp. 2804-2818
Author(s):  
Adesola Ibironke
Keyword(s):  
Monetary Policy ◽  
Oil Price ◽  
Fiscal Deficit ◽  
Fiscal Policies ◽  
Policy Options ◽  
Fiscal Discipline ◽  
Monetary Policies ◽  
Fiscal Rule ◽  
Key Aspects

This paper reviews key aspects of Nigeria’s fiscal and monetary policies with the aim of examining the performance of the policies. The paper provides a synthesis of key facts and draws policy conclusions which include the following: (i) fiscal policies such as the oil-price-based fiscal rule introduced in 2004 have increased fiscal discipline and reduced fiscal deficit in Nigeria, hence the policies should be maintained; and (ii) compared to the period of direct or controlled monetary policy approach, monetary policy has performed better in Nigeria under the market-based approach introduced in 1993, therefore the latter approach should be maintained.

Monetary Policy Instruments

2021 ◽  
pp. 89-144
Author(s):  
Juan Antonio Morales ◽  
Paul Reding
Keyword(s):  
Monetary Policy ◽  
Foreign Exchange ◽  
Policy Instruments ◽  
Central Banks ◽  
Open Market ◽  
Monetary Policies ◽  
Reserve Requirements ◽  
Intermediate Targets ◽  
The Way

This chapter presents and discusses the instruments of monetary policy that are used by LFDCs’ central banks. The trend towards market-based monetary policies has been followed by LFDCs’ central banks, which have increasingly resorted to indirect instruments, though direct instruments that are, like exchange controls, of a more administrative nature are still common. The chapter surveys the particular features of reserve requirements, refinancing facilities, open market operations and foreign exchange interventions of LFDCs’ central banks. Each instrument is discussed in detail: its specific purpose, the context, mechanisms and modalities of its use, its advantages but also its possible drawbacks. The way central banks in LFDCs combine these instruments to achieve their operating and intermediate targets is also examined. The discussion is illustrated by examples taken from selected countries.

scholarly journals ANALYSING THE IMPACT OF ECONOMIC POLICIES ON UNEMPLOYMENT AND POVERTY IN NIGERIA

2021 ◽  
pp. 78-95
Author(s):  
Felix Omene ◽  
Keyword(s):  
Monetary Policy ◽  
Money Supply ◽  
Unemployment Rate ◽  
Capital Expenditure ◽  
Government Expenditure ◽  
Policy Instruments ◽  
Economic Policies ◽  
Poverty Level ◽  
Monetary Policies ◽  
The Impact

This study is carried out to empirically examine the effect of economic policies on unemployment and poverty in Nigeria between 1970-2019. The persistent and high level of poverty in Nigeria accompanied by severe unemployment despite the adoption and implementation of various economic policies in terms of fiscal and monetary policies is the motivation behind this study. The objective of the study is to examine how effective economic policies have been in terms of fiscal and monetary policies in curbing unemployment and poverty incidence. The variables used are Poverty index (POV), Unemployment Rate (UMP), fiscal policy instruments in terms of Government expenditure (GEX), Tax and Public Debt, Monetary policy instruments in terms of monetary policy rate (MPR), interest rate (INR) and money supply (MS). Time series dynamic analysis was used to analyses the impact of these macroeconomic instruments on poverty and unemployment. The Auto Regressive Distributed Lag (ARDL) Model was used to examine the short-run, interim and long-run effect of economic policies on unemployment and poverty between 1970-2019. Preliminary test such as stationarity test, cointegration test and trend analysis were conducted before estimation. The evidences from various econometrics analyses from this study revealed that, macroeconomic policies such as money supply, government capital expenditure, unemployment rate and interest rate have a statistically significant impact on poverty level in Nigeria from 1970-2019. The implication of this is that an increase in money supply and government expenditure has a negative effect on poverty level but an increase in unemployment rate and inflation rate will lead to higher poverty level in Nigeria since unemployment rate has a positive and significant impact on poverty level. The recommendations made include; that, since government capital expenditure has a negative impact on poverty level, emphasis should be laid on increasing government capital expenditure especially those meant for development programs and projects to enhance employment which will in turn reduce poverty level in the country.

scholarly journals Monetary Policies and the Achievement of Bank Profit Objective

2021 ◽  
Vol 10 (2) ◽  
pp. 201-220
Author(s):  
Alexander Ehimare Omankhanlen ◽  
Noah Ilori ◽  
Areghan Isibor ◽  
Lawrence Uchenna Okoye
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Money Supply ◽  
Policy Instruments ◽  
Bank Profitability ◽  
Monetary Policies ◽  
Correction Model ◽  
Distributed Lag ◽  
Long Run ◽  
Auto Regressive

Abstract This study examined the nexus between monetary policy and the achievement of a bank’s profit objective. There have been lots of arguments about the benefits of monetary policy implementation on deposit money bank’s operations, since the policies have been seen to impact on their performance. This study was carried out to establish the influence of variables like Liquidity Ratio, Interest and Money supply (M2), which are used as monetary policy instruments, on deposit money bank profitability objective. The study covers the period from 2002-2019. The Auto Regressive Distributed Lag and Error correction model were adopted in the analysis of the data. The study revealed that there was a positive long run relationship between Liquidity Ratio and deposit money bank’s profitability; there also existed a negative long run relationship between interest rate and deposit money bank profitability; lastly, there existed a positive long run relationship between Money Supply (M2) and deposit money bank’s profitability. Based on the findings, monetary authorities should put in place measures for Liquidity ratio, interest rates and M2 implementation to aid deposit money banks operations in the achievement of their profit objective.

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