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This article investigates the impacts of the macroprudential policy of limitation on credit growth in housing market on Korean economy to find empirical and theoretical implications. Empirical results based on VAR models show that...
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This article investigates the impacts of the macroprudential policy of limitation on credit growth in housing market on Korean economy to find empirical and theoretical implications. Empirical results based on VAR models show that macroprudential policies like LTV and DTI in Korea have significant and persistent effect on real household credit and real house price. This article further addresses implications of optimal macroprudential and monetary policy in Korea by employing a standard DSGE model. The results suggest that the time-varying macroprudential policy responding to the borrower's debt to income ratio is most effective in stabilizing household debt among the macroprudential policy rules considered, but produces a moderate downturn of the economy.
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This paper analyses the conduct and the effects of macroprudential policy in 11 Asian economies, some of which used macroprudential instruments frequently already before the Great Financial Crisis. Data are quarterly for the perio...
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This paper analyses the conduct and the effects of macroprudential policy in 11 Asian economies, some of which used macroprudential instruments frequently already before the Great Financial Crisis. Data are quarterly for the period 2000-2014. The frequency of macroprudential measures has generally increased after the crisis, and policies are generally tightened during the upswing of a bank credit cycle. Estimates from panel vector autoregression models show that contractionary macroprudential policy shocks have negative effects on credit and output that are qualitatively similar to those of monetary policy. The results suggest that policy conflicts when credit growth is strong and the real economy is weak may be resolved through complementary use of macroprudential and monetary policy instruments.
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Based on data collected from Brazilian banks, this study aims to understand how monetary policy affects bank's risk measures that can be used as macroprudential financial institutions-based policies. The findings denote that an in...
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Based on data collected from Brazilian banks, this study aims to understand how monetary policy affects bank's risk measures that can be used as macroprudential financial institutions-based policies. The findings denote that an increase in the monetary policy interest rate implies an adjustment in the banks' strategy for ensuring safety and soundness. On the other hand, when the central bank reduces the interest rate, banks decrease their risk covers (bank's risk measures), becoming less safe. Hence, this scenario should trigger macroprudential supervisor awareness. In brief, the results suggest that the coordination between macroprudential and monetary policies is necessary.
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The 2008 crisis forced central bankers and the representatives of academic literature to reassess the prevailing consensus on practice of monetary policy. Among other topics,the spotlight also fell on the question that how financi...
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The 2008 crisis forced central bankers and the representatives of academic literature to reassess the prevailing consensus on practice of monetary policy. Among other topics,the spotlight also fell on the question that how financial stability must be treated. Debate renewed on whether the central bank must play an active role in preventing and managing market turmoil,which consists of leaning against the wind of markets. This paper summarises opinions on this issue and offers our own conclusions. We found that currently neither the theoretical background nor empirical experience provide compelling evidence or a reference for central bankers to move away from their existing monetary policy framework and adopt a leaning against the wind policy. We conclude that the direct integration of financial stability considerations into monetary policy decision-making - i.e. as a form of rules - is not expected in the near future. However,we think that the debate remains open for two reasons: firstly,there is some uncertainty regarding the success of macroprudential regulation and its proper cooperation with monetary policy and secondly,the theoretical development of the implementation of financial cycles into monetary decision-making may also yield results.
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This paper studies macro credit policies within the financial accelerator model of Bernanke. Gertler. and Gilchrist (1999). The focus is on borrower-based restrictions on lending such as loan-to-value (LTV) ratios. We find that th...
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This paper studies macro credit policies within the financial accelerator model of Bernanke. Gertler. and Gilchrist (1999). The focus is on borrower-based restrictions on lending such as loan-to-value (LTV) ratios. We find that the efficacy of cyclical taxes on LTV ratios depends upon the nature of the underlying loan contract. If the loan contract contains equity-like features such as indexation to aggregate conditions, then there is little role for cyclical taxation. But if the loan contract is not indexed to aggregate conditions, then there are substantial gains to procyclical taxes on LTV ratios.
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This paper investigates the effectiveness of macroprudential policies introduced by Turkey in late 2010. The unprecedented quantitative easing policies of advanced countries after the global financial crisis have presented serious...
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This paper investigates the effectiveness of macroprudential policies introduced by Turkey in late 2010. The unprecedented quantitative easing policies of advanced countries after the global financial crisis have presented serious financial stability concerns for most emerging countries including Turkey. To cope with these challenges, Turkey has devised new policy tools such as asymmetric interest rate corridor and reserve option mechanism. From the perspective of capital flows, the interest rate corridor works mainly through stabilizing supply of foreign funds, and the reserve option mechanism through decreasing the sensitivity of equilibrium exchange rate to shifts in the demand for foreign funds. Using a large panel of 46 countries and employing [Bruno and Shin (2013a). Capital flows, cross-border banking and Global liquidity. Working paper, Princeton university; Bruno and Shin (2013b). Assessing macroprudential policies: Case of Korea. Working paper, Princeton university] methodology, we investigate whether the new policy framework in Turkey has been successful in cushioning the economy from volatile cross-border capital flows from a comparative perspective. The results show that, after controlling for a set of domestic and external variables and relative to a group of advanced and emerging countries, cross-border capital flows to Turkey have been less sensitive to global factors after the implementation of macroprudential policies.
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We estimate the Smets-Wouters model featuring the Gertler-Karadi banking sector on US data using real and financial observables. We investigate the gains from coordination between a flexible inflation targeting central bank and a ...
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We estimate the Smets-Wouters model featuring the Gertler-Karadi banking sector on US data using real and financial observables. We investigate the gains from coordination between a flexible inflation targeting central bank and a macroprudential regulator charged with safeguarding financial stability. The potential gains from coordination depend on how much importance is given to the output gap in the macroprudential mandate. Coordination conflicts can be avoided by assigning similar importance to this common objective in the respective mandates of both policies. When we derive optimal mandates for monetary and macroprudential policy under no-coordination, we find that both policy makers should place a higher weight than society on the output gap. (C) 2017 Elsevier B.V. All rights reserved.
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The model developed in this paper examines the interaction between monetary and macroprudential policies in promoting macroeconomic stability, highlighting the role of shocks and policy instruments. The paper shows that assigning ...
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The model developed in this paper examines the interaction between monetary and macroprudential policies in promoting macroeconomic stability, highlighting the role of shocks and policy instruments. The paper shows that assigning the mandates of monetary and financial stability to independent authorities enhances macroeconomic stability only when some level of coordination exists between policymakers and it is the dominant institutional arrangement when monetary stability is socially important. Instead, when society values financial stability, internalising the policy spillovers by assigning the two mandates to a single policymaker could become the dominant configuration depending on the model's parameter values. (C) 2019 Elsevier B.V. All rights reserved.
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We estimate a quantitative general equilibrium model with nominal rigidities and financial intermediation to examine the interaction of monetary and macroprudential stabilization policies. The estimation procedure uses credit spre...
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We estimate a quantitative general equilibrium model with nominal rigidities and financial intermediation to examine the interaction of monetary and macroprudential stabilization policies. The estimation procedure uses credit spreads to help identify the role of financial shocks amenable to stabilization via monetary or macroprudential instruments. The estimated model implies that monetary policy should not respond strongly to the credit cycle and can only partially insulate the economy from the distortionary effects of financial frictions/shocks. A counter-cyclical macroprudential instrument can enhance welfare, but faces important implementation challenges. In particular, a Ramsey planner who adjusts a leverage tax in an optimal way can largely insulate the economy from shocks to intermediation, but a simple-rule approach must be cautious not to limit credit expansions associated with efficient investment opportunities. These results demonstrate the importance of considering both optimal Ramsey policies and simpler, but more practical, approaches in an empirically grounded model. Published by Elsevier Inc.
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