Monetary and Macroprudential Policies to Manage Capital Flows
Author | : Juan Pablo Medina Guzman |
Publisher | : International Monetary Fund |
Total Pages | : 44 |
Release | : 2014-02-12 |
ISBN-10 | : 9781484302873 |
ISBN-13 | : 1484302877 |
Rating | : 4/5 (73 Downloads) |
Download or read book Monetary and Macroprudential Policies to Manage Capital Flows written by Juan Pablo Medina Guzman and published by International Monetary Fund. This book was released on 2014-02-12 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.