The Interaction of Monetary and Macroprudential Policies

Publication Date:

December 29, 2012

Electronic Access:

Free Full text (PDF file size is 633 KB).Use the free Adobe Acrobat Reader to view this PDF file

Summary:

The recent crisis showed that price stability does not guarantee macroeconomic stability. In several countries, dangerous financial imbalances developed under low inflation and small output gaps. To ensure macroeconomic stability, policy has to include financial stability as an additional objective. But a new objective demands new tools: macroprudential tools that can target specific sources of financial imbalances (something monetary policy is not well suited to do). Effective macroprudential policies (which include a range of constraints on leverage and the composition of balance sheets) could then contain risks ex ante and help build buffers to absorb shocks ex post.

Series:

Policy Papers

Subject:

English

Publication Date:

December 29, 2012

Price:

Free

Format:

Paper

Please address any questions about this title to publications@imf.org