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

_IMF Working Papers, November 1, 2009_

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**Canonical URL:** [Monetary and Macroprudential Policy Rules in a Model with House Price Booms](https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-and-macroprudential-policy-rules-in-a-model-with-house-price-booms-23399)

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## Bibliographic details
- Authors: Alasdair Scott, Pau Rabanal, Prakash Kannan
- Published: November 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873986.001

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### Summary
- Authors: Alasdair Scott, Pau Rabanal, Prakash Kannan
- Date: November 1, 2009
- Core argument: A stronger emphasis on macrofinancial risk could provide stabilization benefits.
- Key simulation insight: Strong monetary reactions to accelerator mechanisms that push up credit growth and asset prices could help macroeconomic stability.
- Complementary policy tool: A macroprudential instrument designed specifically to dampen credit market cycles would also be useful.
- Caution: Invariant and rigid policy responses raise the risk of policy errors that could lower, not raise, macroeconomic stability; hence, discretion would be required.

### Main Findings
- Emphasizing macrofinancial risk in policy frameworks can improve stabilization outcomes.
- Monetary policy that reacts strongly to accelerator mechanisms (those that boost credit growth and asset prices) can contribute to macroeconomic stability.
- Macroprudential instruments targeted at credit market cycles provide additional usefulness in stabilizing the economy.
- Rigid, rule-based policy responses risk producing policy errors and reducing macroeconomic stability; discretionary judgment is necessary.

### Policy Implications and Recommendations
- Consider stronger monetary policy reactions to indicators of credit growth and asset price accelerations.
- Implement a macroprudential instrument aimed at damping credit market cycles alongside monetary policy.
- Avoid invariant, mechanically rigid policy rules; maintain discretionary capacity to respond to evolving macrofinancial conditions.

### Subject Classification and Keywords
- Subject: Asset prices, Credit, Housing prices, Inflation, Output gap
- Keywords: monetary policy, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-and-macroprudential-policy-rules-in-a-model-with-house-price-booms-23399_