Front Matter Page
THE INTERACTION OF MONETARY AND MACROPRUDENTIAL POLICIES—BACKGROUND PAPER
December 27, 2012
Approved By Jan Brockmeijer
This paper was prepared by a staff team led by Erlend Nier, comprising Heedon Kang, Tommaso Mancini, Heiko Hesse (all MCM), Francesco Columba (WHD), Robert Tchaidze (EUR), and Jerome Vandenbussche (EUR).
Contents
I. INTRODUCTION
II. INTERACTIONS BETWEEN MONETARY AND MACROPRUDENTIAL POLICY
A. Policy Interactions—Conceptual Framework
B. Monetary Policy and Side Effects on Financial Stability
C. Macroprudential Transmission and Effects on Real Economic Outcomes
III. EMPIRICAL ANALYSIS
A. Macroprudential Policies—Effects on Credit, House Prices, and Output
B. Effects of Macroprudential Policy Measures—Symmetric or Asymmetric?
IV. COUNTRY CASES
A. Selected Central, Eastern, and South-Eastern Europe Countries
B. Brazil
C. Turkey
D. Korea
E. United States
REFERENCES
BOX
1. Case Studies on Monetary and Macroprudential Policies
FIGURES
1. Number of Macroprudential Measures—Tightening or Loosening
2. Selected CESEE Countries: Foreign Currency Loans and Policy Interest Rate Spreads, 2005-11
3. Brazil: Macroeconomic Conjuncture and Policy Responses
4. Brazil: Credit Expansion
5. Brazil: Impacts of RRs Tightening (1 percent) on Credit Growth
6. Brazil: Effectiveness of Changes of Capital Requirements on Consumer Loan
7. Brazil: Monetary and Macroprudential Policy Coordination
8. Turkey: Credit Growth and Current Account Deficit
9. Turkey: Interest Rates, Reserve Requirement Ratios, and Growth of Lending
10. Turkey: Inflation Expectations and Inflation Rates
11. Turkey: Cumulative Liquidity Injections
12. Korea: House Prices and Household Debts
13. Korea: Monetary Policy as a Countercyclical Tool
14. Korea: Effectiveness of Limits on LTV and DTI Ratios
15. Korea: External Net Assets of Banking Sector
16. Korea: Foreign Exchange Rates and CDS Premium
17. United States: Interest Rates
18. United States: Inflation Rates and GDP Growth Rates
19. United States: Recommended Policy Rates from Baseline Taylor Rule Responding to CPI Inflation and A Variant Responding to the GDP Deflator
20. United States: Recommended Policy Rates from Baseline Taylor Rule Responding to CPI Inflation and A Variant Responding To Core PCE Inflation
21. United States: Leverage Ratio
22. United States: Net Federal Funds and Security Repo Funding to Banks and Brokers-Dealers
23. United States: Standard and Poor Composite Home Price Index
TABLES
1. Monetary Policy Effects on Financial Stability
2. Use of Macroprudential Measures Across Countries
3. Effects of Macroprudential Measures on Credit Growth
4. Effects of Macroprudential Measures on House Price Appreciation
5. Effects of Macroprudential Measures on Output Growth and Residential Investment
6. Effects of Macroprudential Measures on Capital Inflows
7. Number of Macroprudential Measures—Tightening or Loosening
8. Effects of Macroprudential Policy Stance on Credit Growth
9. Effects of Macroprudential Policy Stance on House Price Appreciation
10. Selected CESEE Countries: Inflation Target, Inflation Outturn, and Policy Rates, 2006-11
11. Selected CESEE Countries: Use of Macroprudential Instruments Addressing Foreign Currency Loans, 2002Q1-2012Q1
12. Selected CESSE Countries: Determinants of the Share of Foreign Currency Loans, 2001Q1-2012Q1
13. Brazil: Changes of Capital Requirements on Consumer Loans
14. Turkey: Macroprudential Measures Undertaken in 2008-11
15. Korea: Changes of Limits on LTV and DTI Ratios