On the use of Monetary and Macroprudential Policies for Small Open Economies
Author | : Mr.F. Gulcin Ozkan |
Publisher | : International Monetary Fund |
Total Pages | : 34 |
Release | : 2014-06-24 |
ISBN-10 | : 9781498375429 |
ISBN-13 | : 1498375421 |
Rating | : 4/5 (29 Downloads) |
Book excerpt: 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.