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

Author/Editor:

Alasdair Scott ; Pau Rabanal ; Prakash Kannan

Publication Date:

November 1, 2009

Electronic Access:

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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.

Series:

Working Paper No. 09/251

Subject:

English

Publication Date:

November 1, 2009

ISBN/ISSN:

9781451873986/1018-5941

Stock No:

WPIEA2009251

Format:

Paper

Pages:

36

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