Posted
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July 19, 2014 10:40:05 PM |
Date
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2014-06 |
Author
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F. Gulcin Ozkan and D. Filiz Unsal |
Affiliation
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Strategy, Policy, and Review Department |
Title
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On the use of Monetary and Macroprudential Policies for Small Open Economies |
Summary / Abstract
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We explore optimal monetary and macroprudential policy rules for a small open economy. Delegating 'lean against the wind' squarely to macroprudential policy provides a more robust policy mix to shock uncertainty--(i) if macroprudential measures exist, there are no significant welfare gains from monetary policy reacting to credit growth under a financial shock; and (ii) monetary responses to financial markets could generate bigger welfare losses than macroprudential responses under different shocks. The source of outstanding liabilities also plays a role in the choice of policy instrument--macroprudential policies are particularly effective for emerging markets where foreign borrowing is sizeable. |
Keywords
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Macroprudential Policy; Monetary policy; Small open economies; Emerging markets; Entrepreneurship; External borrowing; Financial stability; Econometric models;Financial instability; monetary policy; macroprudential measures; emerging markets |
URL
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http://www.imf.org/external/pubs/ft/wp/2014/wp14112.pdf
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See
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