Macro-pru can alleviate stress – Portuguese paper

Bank of Portugal
The Bank of Portugal
Photo: Bank of Portugal

A working paper published by the Bank of Portugal examines how policy-makers can use macro-prudential tools when an economy comes under stress.

In The role of macro-prudential policy in times of trouble, Jagjit Chadha et al present a model featuring savers, borrowers and banks. Banks loan funds at a premium determined by the quality of housing collateral, asset prices, and the demand for and perceived risk of loans.

There is a close relationship between aggregate consumption and house prices

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