We explore optimal monetary and macroprudential policy rules for a small open economy. Delegating 'lean against the wind' squarely to macroprudential policy provides a more robust policy mix to shock uncertainty—(i) if macroprudential measures exist, there are no significant welfare gains from monetary policy reacting to credit growth under a financial shock; and (ii) monetary responses to financial markets could generate bigger welfare losses than macroprudential responses under different shocks. The source of outstanding liabilities also plays a role in the choice of policy instrument— macroprudential policies are particularly effective for emerging markets where foreign borrowing is sizeable.
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|Size: ||1.6 MB|
|Publisher: ||INTERNATIONAL MONETARY FUND|
|Date published: || 2014|
|ISBN: ||9781498327916 (DRM-EPUB)|
|Copying:||of 20 selections every 20 days allowed|
|Printing:||of 20 pages every 20 days allowed|
|Read Aloud: ||not allowed|