{
  "title": "Will Macroprudential Policy Counteract Monetary Policy’s Effects on Financial Stability?",
  "publication": "IMF Working Papers, December 29, 2015",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/will-macroprudential-policy-counteract-monetary-policys-effects-on-financial-stability-43501",
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  "summary": "How does monetary policy impact upon macroprudential regulation? This paper models monetary policy's transmission to bank risk taking, and its interaction with a regulator's optimization problem.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Itai Agur, Maria Demertzis\n- Date: December 29, 2015\n- Core question: How does monetary policy impact upon macroprudential regulation?\n- Approach: A model of monetary policy transmission to bank risk taking and its interaction with a regulator's optimization problem.\n- Macroprudential tool analyzed: a leverage ratio used by the regulator to maintain financial stability while accounting for effects on credit provision.\n- Central insight: A change in the monetary policy rate tilts the regulator's entire trade-off; the regulator allows interest rate changes to partly \"pass through\" to bank soundness by not neutralizing the risk-taking channel of monetary policy."
    },
    {
      "heading": "Key findings",
      "content": "- The regulator does not fully neutralize the risk-taking channel of monetary policy.\n- Monetary policy affects financial stability even in the presence of macroprudential regulation.\n- The trade-off faced by the regulator includes maintaining financial stability via leverage constraints and preserving credit provision."
    },
    {
      "heading": "Policy implications and interpretations",
      "content": "- Macroprudential policy (via a leverage ratio) interacts with monetary policy rather than fully offsetting its effects on bank risk-taking.\n- Regulators may optimally permit some pass-through of monetary policy changes to banks’ risk profiles to balance stability and credit supply objectives.\n- Coordination considerations: The results imply that monetary policy decisions will have implications for financial stability that macroprudential policy alone will not eliminate."
    },
    {
      "heading": "Subject classifications",
      "content": "- Bank soundness\n- Banking\n- Central bank policy rate\n- Financial crises\n- Financial sector policy and analysis\n- Financial sector stability\n- Financial services\n- Macroprudential policy"
    },
    {
      "heading": "Keywords",
      "content": "- bank leverage\n- bank regulator\n- bank risk\n- Bank soundness\n- Central bank policy rate\n- Financial sector stability\n- Global\n- Macroprudential\n- Macroprudential policy\n- monetary policy rate change\n- risk choice\n- risk profile\n- Supervision\n- Transmission\n- WP\n\n---\n\n Content in this bundle\n\n- wp15283 - References\n  - wp15283 - References (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp15283 - References (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/will-macroprudential-policy-counteract-monetary-policys-effects-on-financial-stability-43501"
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    "Authors: Itai Agur, Maria Demertzis",
    "Published: December 29, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513545332.001",
    "Authors: Itai Agur, Maria Demertzis",
    "Date: December 29, 2015",
    "Core question: How does monetary policy impact upon macroprudential regulation?",
    "Approach: A model of monetary policy transmission to bank risk taking and its interaction with a regulator's optimization problem.",
    "Macroprudential tool analyzed: a leverage ratio used by the regulator to maintain financial stability while accounting for effects on credit provision.",
    "Central insight: A change in the monetary policy rate tilts the regulator's entire trade-off; the regulator allows interest rate changes to partly \"pass through\" to bank soundness by not neutralizing the risk-taking channel of monetary policy.",
    "The regulator does not fully neutralize the risk-taking channel of monetary policy.",
    "Monetary policy affects financial stability even in the presence of macroprudential regulation.",
    "The trade-off faced by the regulator includes maintaining financial stability via leverage constraints and preserving credit provision.",
    "Macroprudential policy (via a leverage ratio) interacts with monetary policy rather than fully offsetting its effects on bank risk-taking.",
    "Regulators may optimally permit some pass-through of monetary policy changes to banks’ risk profiles to balance stability and credit supply objectives.",
    "Coordination considerations: The results imply that monetary policy decisions will have implications for financial stability that macroprudential policy alone will not eliminate.",
    "Bank soundness",
    "Banking",
    "Central bank policy rate",
    "Financial crises",
    "Financial sector policy and analysis",
    "Financial sector stability",
    "Financial services",
    "Macroprudential policy",
    "bank leverage",
    "bank regulator",
    "bank risk",
    "Bank soundness",
    "Central bank policy rate",
    "Financial sector stability",
    "Global",
    "Macroprudential",
    "Macroprudential policy",
    "monetary policy rate change",
    "risk choice",
    "risk profile",
    "Supervision",
    "Transmission",
    "WP",
    "**_wp15283 - References**"
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