Macro-prudential and monetary policy work well together – ECB paper
Monetary policy can be used to cushion shocks caused by counter-cyclical buffers, researchers find
Policy-makers can best respond to financial crises if they use both monetary and macro-prudential policy, a working paper published by the European Central Bank finds.
In Targeting financial stability: macroprudential or monetary policy? David Aikman, Julia Giese, Sujit Kapadia and Michael McLeay look at how the two kinds of policy interact in response to various simulated shocks.
They use a simple New Keynesian model, in which credit booms can lead to a financial crisis. This model, the
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