Assessing Effects of the Policy Coordination between Monetary and Macroprudential Policy
Publisher : Korea Insurance Research Institute
Research Area : Business Management
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This study assesses the effects of policy coordination between monetary and macroprudential policy using a new Keynesian DSGE model which includes financial sector explicitly. Monetary policy is implemented with a short term interest rate; on the other hand, macroprudential policy is implemented with loan to value(LTV) ratio or countercyclical capital buffer(CCB). Adding a new macroprudential policy tool to the economy improves the policy effectiveness in pursuing price and financial stability at the same time, though the price stability is hampered compared with an economy where the price stability was the only aim of the policy authority. Coordinated policy implementation turns out to be superior to uncoordinated one except the case in which CCB responds to cost shock as a macroprudential policy tool. As there exists the possibility of conflict between monetary and macropudential policy aims, clear governance system for the policy coordination is necessary.
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