{ "title": "Countercyclical Macro Prudential Policies in a Supporting Role to Monetary Policy", "publication": "IMF Working Papers, November 1, 2009", "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416", "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416", "overlayPath": "/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416/index.md", "summary": "This paper explores how prudential regulations can support monetary policy in reducing output fluctuations while maintaining financial stability. It uses a new framework that blends a standard model for monetary policy analysis with a contingent claims model of financial sector vulnerabilities.", "sections": [ { "heading": "Summary and Research Question", "content": "- Explores how prudential regulations can support monetary policy in reducing output fluctuations while maintaining financial stability.\n- Uses a new framework that blends a standard model for monetary policy analysis with a contingent claims model of financial sector vulnerabilities.\n- Investigates whether binding countercyclical prudential regulations can reduce output fluctuations and lessen the risk of financial instability." }, { "heading": "Framework and Methodology", "content": "- Combines:\n - a standard model for monetary policy analysis, and\n - a contingent claims model of financial sector vulnerabilities.\n- Focuses on the role of countercyclical prudential rules (for example, countercyclical capital adequacy rules) in interacting with monetary policy and asset-price dynamics." }, { "heading": "Key Findings", "content": "- Binding countercyclical prudential regulations can help reduce output fluctuations.\n- Countercyclical rules can lessen the risk of financial instability.\n- Countercyclical capital adequacy rules can allow monetary authorities to achieve the same output and inflation objectives but with smaller adjustments in interest rates.\n- Countercyclical rules can:\n - help stem swings in asset prices,\n - lean against a financial accelerator process,\n - help lower risks of macroeconomic and financial instability.\n- In economies with fixed exchange rates, where countercyclical monetary policy is not possible, prudential regulations can provide a useful mechanism for mitigating a run-up in asset prices and for promoting output stability." }, { "heading": "Policy Implications and Recommendations", "content": "- Implement binding countercyclical prudential regulations, such as countercyclical capital adequacy rules, to support monetary policy objectives.\n- Use prudential regulations as a policy tool to:\n - reduce the need for large interest rate adjustments,\n - stabilize asset prices,\n - mitigate financial accelerator effects.\n- In fixed exchange rate regimes, rely more on prudential regulations to manage asset-price run-ups and promote output stability when monetary policy cannot be countercyclical." }, { "heading": "Publication and Metadata", "content": "- Author: Papa M N'Diaye\n- Date: November 1, 2009\n- Series: Working Paper No. 2009/257\n- Issue: 257\n- Volume: 2009\n- Pages: 22\n- DOI: https://doi.org/10.5089/9781451874037.001\n- Stock No: WPIEA2009257\n- ISBN: 9781451874037\n- ISSN: 1018-5941\n- Citation preview (format: Chicago): Papa M N'Diaye. \"Countercyclical Macro Prudential Policies in a Supporting Role to Monetary Policy\", IMF Working Papers 2009, 257 (2009), accessed 9/17/2026, https://doi.org/10.5089/9781451874037.001\n\nIMF Working Paper summary authored by Papa M N'Diaye.\n\n---\n\n Content in this bundle\n\n- wp09257\n - wp09257 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - wp09257 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416" } ], "bullets": [ "[Markdown version](/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416/index.md)", "[Structured JSON version](/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416/index.json)", "[Bundle manifest](/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416/bundle-manifest.json)", "Authors: Papa M N'Diaye", "Published: November 1, 2009", "Series: IMF Working Papers", "DOI: https://doi.org/10.5089/9781451874037.001", "Explores how prudential regulations can support monetary policy in reducing output fluctuations while maintaining financial stability.", "Uses a new framework that blends a standard model for monetary policy analysis with a contingent claims model of financial sector vulnerabilities.", "Investigates whether binding countercyclical prudential regulations can reduce output fluctuations and lessen the risk of financial instability.", "Combines:", "Focuses on the role of countercyclical prudential rules (for example, countercyclical capital adequacy rules) in interacting with monetary policy and asset-price dynamics.", "Binding countercyclical prudential regulations can help reduce output fluctuations.", "Countercyclical rules can lessen the risk of financial instability.", "Countercyclical capital adequacy rules can allow monetary authorities to achieve the same output and inflation objectives but with smaller adjustments in interest rates.", "Countercyclical rules can:", "In economies with fixed exchange rates, where countercyclical monetary policy is not possible, prudential regulations can provide a useful mechanism for mitigating a run-up in asset prices and for promoting output stability.", "Implement binding countercyclical prudential regulations, such as countercyclical capital adequacy rules, to support monetary policy objectives.", "Use prudential regulations as a policy tool to:", "In fixed exchange rate regimes, rely more on prudential regulations to manage asset-price run-ups and promote output stability when monetary policy cannot be countercyclical.", "Author: Papa M N'Diaye", "Date: November 1, 2009", "Series: Working Paper No. 2009/257", "Issue: 257", "Volume: 2009", "Pages: 22", "DOI: https://doi.org/10.5089/9781451874037.001", "Stock No: WPIEA2009257", "ISBN: 9781451874037", "ISSN: 1018-5941", "Citation preview (format: Chicago): Papa M N'Diaye. \"Countercyclical Macro Prudential Policies in a Supporting Role to Monetary Policy\", IMF Working Papers 2009, 257 (2009), accessed 9/17/2026, https://doi.org/10.5089/9781451874037.001", "**_wp09257**" ], "related": [ { "title": "_wp09257", "role": "document", "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09257.pdf", "summary": { "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09257.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09257.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416/index.md", "json": "/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416/index.json", "bundleManifest": "/en/publications/wp/issues/2016/12/31/countercyclical-macro-prudential-policies-in-a-supporting-role-to-monetary-policy-23416/bundle-manifest.json" }, "generatedAtUtc": "2026-09-17T11:13:51.987Z" }