Monetary and Macroprudential Policy Rules in a Model with House Price Booms
November 1, 2009
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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
Pages:
36
Volume:
2009
DOI:
Issue:
251
Series:
Working Paper No. 2009/251
Stock No:
WPIEA2009251
ISBN:
9781451873986
ISSN:
1018-5941
