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

Author/Editor: Kannan, Prakash | Rabanal, Pau | Scott, Alasdair
Authorized for Distribution: November 1, 2009
Electronic Access: Free Full Text (PDF file size is 950KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

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.
 
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Series: Working Paper No. 09/251
Subject(s): Asset prices | Capital markets | Central banks | Credit controls | Credit demand | Credit risk | Economic models | External shocks | Household credit | Housing prices | Monetary policy | Price increases
Author's keyword(s): house prices | monetary policy | macroprudential
 
English  
    Published:   November 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009251   Pages:   36
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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