Monetary and Macroprudential Policy Rules in a Model with House Price Booms

By Alasdair Scott, Pau Rabanal, Prakash Kannan

November 1, 2009

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Format: Chicago

Alasdair Scott, Pau Rabanal, and Prakash Kannan. Monetary and Macroprudential Policy Rules in a Model with House Price Booms, (USA: International Monetary Fund, 2009) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We argue that a stronger emphasis on macrofinancial risk could provide stabilization benefits. Simulations results suggest that strong monetary reactions to accelerator mechanisms that push up credit growth and asset prices could help macroeconomic stability. In addition, using a macroprudential instrument designed specifically to dampen credit market cycles would also be useful. But invariant and rigid policy responses raise the risk of policy errors that could lower, not raise, macroeconomic stability. Hence, discretion would be required.

Subject: Asset prices, Credit, Housing prices, Inflation, Output gap

Keywords: Monetary policy, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/251
Stock No:

WPIEA2009251
ISBN:

9781451873986
ISSN:

1018-5941

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