scholarly journals Monetary and Macroprudential Policies in an Intangible Economy

2020 ◽  
Vol 53 (3) ◽  
pp. 325-353
Author(s):  
Guido Baldi ◽  
André Bodmer
Keyword(s):  
Banking Sector ◽  
Dynamic Stochastic General Equilibrium ◽  
Intangible Capital ◽  
Specific Productivity ◽  
Productivity Shocks ◽  
Policy Rules ◽  
Taylor Rules ◽  
Macroprudential Policies ◽  
Advanced Economies ◽  
Dynamic Stochastic

Advanced economies are increasingly based on intangible capital. Intangible capital has at least two special characteristics compared to tangible capital. First, it can be simultaneously used to produce different goods. Second, it is less suitable as collateral for obtaining external funds than tangible capital. These features could influence monetary and macroprudential policies. Against this backdrop, we study the effects of monetary and macroprudential policies by using a dynamic stochastic general equilibrium model with intangible capital and a banking sector. In our model, sector-specific productivity shocks to tangible and intangible production have different effects on the economy, in particular on inflation and loans. In addition, the two shocks lead to different reactions of monetary and macroprudential policies. As a result, the volatility of macroeconomic variables differs across shocks and policy rules. In particular, augmented Taylor rules increase the volatility of loans after an intangible productivity shock and, from this perspective, appear to be less desirable than macroprudential rules after this type of shock. However, welfare effects of different policy rules are not qualitatively different across shocks because of similar impacts on the volatility of consumption.

China’s Monetary and Macroprudential Policies: Are They Complementary or Substitutive?

2020 ◽  
Author(s):  
Peter Sinclair ◽  
Lixin Sun
Keyword(s):  
Financial Stability ◽  
Banking Sector ◽  
Dynamic Stochastic General Equilibrium ◽  
Macroeconomic Policies ◽  
Macroprudential Policies ◽  
Policy Experiments ◽  
Quantitative Results ◽  
Dynamic Stochastic ◽  
The Interest Rate ◽  
Reserve Ratio

Abstract This paper develops a calibrated dynamic stochastic general equilibrium model incorporating a banking sector and some unique features of China’s macroeconomic policies to simulate China’s monetary and macroprudential policies. The quantitative results show, first, that the interest rate is a better instrument for China’s monetary policy than the required reserve ratio (RRR) when the central bank is solely concerned about price stability; second, that the loan-to-value ratio is a very useful macroprudential tool for China’s financial stability, and the RRR could be used as an instrument for both objectives; third, monetary and macroprudential policies could be either complements or substitutes in China, depending on the choices of instruments for the two policies. Our policy experiments recommend three combination choices of instruments for China’s monetary and macroprudential policies. (JEL codes: E52, E61and G18)

scholarly journals Synergies Between Monetary and Macroprudential Policies in Thailand

2020 ◽  
Vol 20 (83) ◽  
Author(s):  
Ichiro Fukunaga ◽  
Manrique Saenz
Keyword(s):  
Monetary Policy ◽  
General Equilibrium ◽  
Dynamic Stochastic General Equilibrium ◽  
Policy Rule ◽  
Macroprudential Policy ◽  
Policy Rules ◽  
Macroprudential Policies ◽  
Wide Range ◽  
Monetary Policy Rule ◽  
Dynamic Stochastic

A dynamic stochastic general equilibrium (DSGE) model tailored to the Thai economy is used to explore the performance of alternative monetary and macroprudential policy rules when faced with shocks that directly impact the financial cycle. In this context, the model shows that a monetary policy focused on its traditional inflation and output objectives accompanied by a well targeted counter-cyclical macroprudential policy yields better macroeconomic outcomes than a lean-against-the-wind monetary policy rule under a wide range of assumptions.

scholarly journals Informality, Frictions, and Macroprudential Policy

2019 ◽  
Vol 2019 (255) ◽  
Author(s):  
Moez Ben Hassine ◽  
Nooman Rebei
Keyword(s):  
Open Economy ◽  
Inflation Targeting ◽  
Banking Sector ◽  
Financial Frictions ◽  
Small Open Economy ◽  
Dynamic Stochastic General Equilibrium ◽  
Macroprudential Policy ◽  
Macroprudential Policies ◽  
Labor Search ◽  
Dynamic Stochastic

We analyze the effects of macroprudential policies through the lens of an estimated dynamic stochastic general equilibrium (DSGE) model tailored to developing markets. In particular, we explicitly introduce informality in the labor and goods markets within a small open economy embedding financial frictions, nominal and real rigidities, labor search and matching, and an explicit banking sector. We use the estimated version of the model to run welfare analysis under optimized monetary and macroprudential rules. Results show that although informality reduces the efficiency of macroprudential policies following a convex fashion, combining the latter with an inflation targeting objective could be beneficial.

THE INTERNATIONAL IMPACT OF MACROPRUDENTIAL POLICIES

2021 ◽  
Author(s):  
Doriane Intungane
Keyword(s):  
Equilibrium Model ◽  
Capital Requirements ◽  
Dynamic Stochastic General Equilibrium ◽  
Time Varying ◽  
Credit Growth ◽  
Cross Border ◽  
Macroprudential Policies ◽  
Dynamic Stochastic ◽  
The Impact

The recent financial crisis started a global debate on the role of financial policies, which led to financial system reforms in many countries. These reforms mainly consisted of increasing the usage of macroprudential policies. This dissertation seeks to understand whether macroprudential policies in financially integrated countries reduced their vulnerability to the impact of external shocks. Chapter 2 empirically examines the impact of macroprudential policies on cross-border bilateral credit growth. Capital requirements and loan-to-value (LTV) ratios, in 15 lending countries and 34 borrowing countries between 2000 and 2014, are used in the analysis. The results show that in some countries, the increase of capital requirements is not effective in reducing international credit flows during periods of financial vulnerability. The impact of tightening LTV ratios is more heterogeneous across countries because LTV ratios are mainly used in the housing sector and not all countries change their LTV ratio frequently. Hence, cooperation across countries is necessary but also countries should make sure that the change of macroprudential policies targeting lenders and those targeting borrowers complement each other to avoid international leakages. Chapter 3 analyzes issues related to the international spillover of macroprudential policies through international banking activities using a two-country dynamic stochastic general equilibrium model with heterogeneous and time-varying macroprudential policies. The results show that a combination of capital requirements and LTV ratios is effective in reducing credit growth despite the existence of cross-border banking activities and heterogeneous implementation of capital requirements across countries. In addition, international coordination of capital requirements is also effective in reducing credit growth but less effective than a combination of capital requirements and LTV ratios. Chapter 4 focuses on the role of countercyclical LTV ratios in reducing transmission of shocks when international investors, holding domestic and foreign assets, face collateral constraint. Using a two-country dynamic stochastic general equilibrium model, the analysis demonstrates that time-varying LTV ratios can reduce the transmission of shocks.

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.

scholarly journals Macroprudential Policy in a Heterogeneous Environment—An Application of Agent-Based Approach in Systemic Risk Modelling

Entropy ◽  
2020 ◽  
Vol 22 (2) ◽  
pp. 129
Author(s):  
Jagoda Kaszowska-Mojsa ◽  
Mateusz Pipień
Keyword(s):  
Systemic Risk ◽  
Financial Distress ◽  
Dynamic Stochastic General Equilibrium ◽  
Macroprudential Policy ◽  
Risk Modelling ◽  
Agent Based ◽  
Macroprudential Policies ◽  
Dynamic Stochastic ◽  
Rbc Models ◽  
The Impact

Assessment of welfare effects of macroprudential policy seems the most important application of the Dynamic Stochastic General Equilibrium (DSGE) framework of macro-modelling. In particular, the DSGE-3D model, with three layers of default (3D), was developed and used by the European Systemic Risk Board and European Central Bank as a reference tool to formally model the financial cycle as well as to analyze effects of macroprudential policies. Despite the extreme importance of incorporating financial constraints in Real Business Cycle (RBC) models, the resulting DSGE-3D construct still embraces the representative agent idea, making serious analyses of diversity of economic entities impossible. In this paper, we present an alternative to DSGE modelling that seriously departs from the assumption of the representativeness of agents. Within an Agent Based Modelling (ABM) framework, we build an environment suitable for performing counterfactual simulations of the impact of macroprudential policy on the economy, financial system and society. We contribute to the existing literature by presenting an ABM model with broad insight into heterogeneity of agents. We show the stabilizing effects of macroprudential policies in the case of economic or financial distress.

Credit-Market Imperfection and Monetary Policy Within DSGE Models

2021 ◽  
pp. 16-42
Author(s):  
Salha Ben Salem ◽  
Nadia Mansour ◽  
Moez Labidi
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Stability ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Models ◽  
Taylor Rules ◽  
Credit Market Imperfection ◽  
Credit Cycle ◽  
Dynamic Stochastic ◽  
Financial Market Frictions

This survey presented the various ways that are utilized in the literature to include financial market frictions in dynamic stochastic general equilibrium (DSGE) models. It focuses on the fundamental issue: to what extent the Taylor rules are optimal when the central bank introduces the goal of financial stability. Indeed, the latest financial crisis shows that the vulnerability of the credit cycle is considered the main source for the amplification of a small transitory shock. This conclusion changed the instrument that drives the transmission of monetary policy through the economy and pushed the policymakers to include financial stability as a second objective of the central bank.

EXPECTATION ERRORS IN CREDIT MARKET AND BUSINESS CYCLES

2016 ◽  
Vol 20 (5) ◽  
pp. 1359-1380
Author(s):  
Kenichi Tamegawa ◽  
Shin Fukuda
Keyword(s):  
Banking Sector ◽  
Simulation Analysis ◽  
Credit Market ◽  
Building Blocks ◽  
Dynamic Stochastic General Equilibrium ◽  
Economic Agents ◽  
Boom And Bust ◽  
Dynamic Stochastic ◽  
Standard Models ◽  
Economic Boom

This study demonstrates how expectation errors in a credit market generate economic fluctuations. To this end, we employ simulation analysis using a dynamic stochastic general equilibrium model. Our model includes two building blocks that are not included in the standard models: the banking sector and matching friction in the labor market. By introducing the banking sector, we can confirm that if economic agents fallaciously expect a rise in future asset prices, such expectations will cause an economic boom and bust. The variation of this fluctuation is quite large and the recession short-lived, but these drawbacks can be avoided by adding matching friction.

Optimal Monetary Policy Rules in an Estimated Sticky-Information Model

2009 ◽  
Vol 1 (2) ◽  
pp. 1-28 ◽  
Author(s):  
Ricardo Reis
Keyword(s):  
Monetary Policy ◽  
Optimal Policy ◽  
Price Level ◽  
Dynamic Stochastic General Equilibrium ◽  
Optimal Monetary Policy ◽  
Sticky Information ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Interest Rate Rule ◽  
Dynamic Stochastic

This paper uses a dynamic stochastic general equilibrium (DSGE) model with sticky information as a laboratory to study monetary policy. It characterizes the model's predictions for macro dynamics and optimal policy at prior parameters, and then uses data on five US macroeconomic series to update the parameters and provide an estimated model that can be used for policy analysis. The model answers a few policy questions. How does sticky information affect optimal monetary policy? What is the optimal interest rate rule? What is the optimal elastic price-level targeting rule? How does parameter uncertainty affect optimal policy? Are the conclusions for the Euro area different? (JEL E13, E31, E43, E52)

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