Posted
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July 19, 2014 10:04:32 PM |
Date
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2014-02 |
Author
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Juan Pablo Medina Guzman and Jorge Roldos |
Affiliation
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IMF Institute for Capacity Development |
Title
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Monetary and Macroprudential Policies to Manage Capital Flows |
Summary / Abstract
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We study interactions between monetary and macroprudential policies in a model with nominal and financial frictions. The latter derive from a financial sector that provides credit and liquidity services that lead to a financial accelerator-cum-fire-sales amplification mechanism. In response to fluctuations in world interest rates, inflation targeting dominates standard Taylor rules, but leads to increased volatility in credit and asset prices. The use of a countercyclical macroprudential instrument in addition to the policy rate improves welfare and has important implications for the conduct of monetary policy. “Leaning against the wind” or augmenting a standard Taylor rule with an argument on credit growth may not be an effective policy response. |
Keywords
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Monetary policy; Macroprudential Policy; Capital flows; Business cycles; Financial sector; Economic models; Capital Inflows, Monetary Policy, Macroprudential Policy, Welfare Analysis |
URL
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http://www.imf.org/external/pubs/ft/wp/2014/wp1430.pdf
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See
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