{
  "title": "Monetary and Macroprudential Policies to Manage Capital Flows",
  "publication": "IMF Working Papers, February 12, 2014",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-and-macroprudential-policies-to-manage-capital-flows-41347",
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  "summary": "We study interactions between monetary and macroprudential policies in a model with nominal and financial frictions. The latter derive from a financial sector that provides credit and liquidity services that lead to a financial accelerator-cum-fire-sales amplification mechanism.",
  "sections": [
    {
      "heading": "Study design and model",
      "content": "- Authors: Juan Pablo Medina Guzman, Jorge Roldos\n- Date: February 12, 2014\n- Model features:\n  - Incorporates nominal and financial frictions.\n  - Financial sector provides credit and liquidity services.\n  - Generates a financial accelerator-cum-fire-sales amplification mechanism."
    },
    {
      "heading": "Main findings",
      "content": "- In response to fluctuations in world interest rates:\n  - Inflation targeting dominates standard Taylor rules.\n  - Inflation targeting leads to increased volatility in credit and asset prices.\n- Use of a countercyclical macroprudential instrument in addition to the policy rate:\n  - Improves welfare.\n  - Has important implications for the conduct of monetary policy.\n- “Leaning against the wind” or augmenting a standard Taylor rule with an argument on credit growth:\n  - May not be an effective policy response."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Combine the policy rate with a countercyclical macroprudential instrument to improve welfare and manage capital-flow-induced volatility.\n- Relying solely on inflation targeting improves macro stability relative to standard Taylor rules but requires attention to financial stability spillovers (credit and asset price volatility).\n- Augmenting Taylor rules with credit-growth terms (leaning against the wind) is unlikely to be effective on its own."
    },
    {
      "heading": "Keywords and subject coverage",
      "content": "- Subject: Central bank policy rate, Economic theory, Financial frictions, Financial services, Inflation targeting, Labor, Monetary policy, Reserve requirements, Self-employment\n- Keywords: Capital Inflows, Central bank policy rate, default rate, defaulted capital, Financial frictions, fire-sale price, Inflation targeting, lending interest rate, lending intermediary, liquidity intermediary, liquidity service, Macroprudential Policy, Monetary Policy, monetary policy rate, recovery rate, Reserve requirements, Self-employment, Welfare Analysis, WP\n\n---\n\n Content in this bundle\n\n- Appendix I. The Lending Problem\n  - Appendix I. The Lending Problem (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Appendix I. The Lending Problem (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-and-macroprudential-policies-to-manage-capital-flows-41347"
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    "Authors: Juan Pablo Medina Guzman, Jorge Roldos",
    "Published: February 12, 2014",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484302873.001",
    "Authors: Juan Pablo Medina Guzman, Jorge Roldos",
    "Date: February 12, 2014",
    "Model features:",
    "In response to fluctuations in world interest rates:",
    "Use of a countercyclical macroprudential instrument in addition to the policy rate:",
    "“Leaning against the wind” or augmenting a standard Taylor rule with an argument on credit growth:",
    "Combine the policy rate with a countercyclical macroprudential instrument to improve welfare and manage capital-flow-induced volatility.",
    "Relying solely on inflation targeting improves macro stability relative to standard Taylor rules but requires attention to financial stability spillovers (credit and asset price volatility).",
    "Augmenting Taylor rules with credit-growth terms (leaning against the wind) is unlikely to be effective on its own.",
    "Subject: Central bank policy rate, Economic theory, Financial frictions, Financial services, Inflation targeting, Labor, Monetary policy, Reserve requirements, Self-employment",
    "Keywords: Capital Inflows, Central bank policy rate, default rate, defaulted capital, Financial frictions, fire-sale price, Inflation targeting, lending interest rate, lending intermediary, liquidity intermediary, liquidity service, Macroprudential Policy, Monetary Policy, monetary policy rate, recovery rate, Reserve requirements, Self-employment, Welfare Analysis, WP",
    "**Appendix I. The Lending Problem**"
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