| Description |
1 online resource (28 pages) |
| Series |
IMF working paper ; WP/11/189 |
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IMF working paper ; WP/11/189.
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| Contents |
Cover Page; Title Page; Copyright Page; Contents; 1. Introduction; 2. The Model; 2.1 Households; 2.2 Firms; 2.2.1 Production Firms; 2.2.2 Importing Firms; 2.2.3 Unfinished Capital Producing Firms; 2.3 Entrepreneurs; 2.4 Financial Intermediaries and Macroprudential Policy; 2.5 Monetary Policy; 3. Solution and Model Parametrization; 3.1 Consumption, Production and Monetary Policy; 1. Parameter Values for Consumption, Production Sectors and Monetary Policy; 3.2 Entrepreneurs; 2. Parameter Values for the Entrepreneurial Sector |
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4. Interactions between Macroprudential and Monetary Policies when Capital Inflows Surge4.1 Can Macroprudential Measures Complement Monetary Policy?; 1. Dynamic Responses to a Positive Financial Shock (Percent deviations from steady state); 3. Parameter of the Policy Rules; 4. Performance of Policies in Reaction to a Financial Shock; 4.2 How effective are Macroprudential Measures on Foreign Liabilities (Capital Controls)?; 2. Dynamic Responses to a Positive Financial Shock (Percent deviations from steady state) |
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4.3 Can Macroprudential Measures be a Substitute for an Appropriate Monetary Policy Reaction?4.4 How do Macroprudential Measures Perform Following Different Shocks?; 3. Dynamic Responses to a Positive Technology Shock (Percent deviations from steady state); 5. Performance of Policies in Reaction to a Technology Shock; 5. Conclusions; References; Footnotes |
| Summary |
"The resumption of capital flows to emerging market economies since mid 2009 has posed two sets of interrelated challenges for policymakers: (i) to prevent capital flows from exacerbating overheating pressures and consequent inflation, and (ii) to minimize the risk that prolonged periods of easy financing conditions will undermine financial stability. While conventional monetary policy maintains its role in counteracting the former, there are doubts that it is sufficient to guard against the risks of financial instability. In this context, there have been increased calls for the development of macroprudential measures, with an explicit focus on systemwide financial risks. Against this background, this paper analys es the interplay between monetary policy and macroprudential regulations in an open economy DSGE model with nominal and real frictions. The key result is that macroprudential measures can usefully complement monetary policy. Even under the "optimal policy," which calls for a rather aggressive monetary policy reaction to inflation, introducing macroprudential measures is found to be welfare improving. Broad macroprudential measures are shown to be more effective than those that discriminate against foreign liabilities (prudential capital controls). However, these measures are not a substitute for an appropriate moneraty policy reaction. Moreover, macroprudential measures are less useful in helping economic stability under a technology shock."--Abstract |
| Bibliography |
Includes bibliographical references |
| Subject |
Capital movements -- Developing countries
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Monetary policy -- Developing countries
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Inflation (Finance) -- Developing countries
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Financial risk management -- Developing countries
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Capital movements
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Financial risk management
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Inflation (Finance)
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Monetary policy
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Developing countries
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| Form |
Electronic book
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| Author |
International Monetary Fund. Research Department, issuing body.
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| ISBN |
1283565137 |
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9781283565134 |
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9781463900687 |
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1463900686 |
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