Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report

Abstract

We have entered a world of conjoined monetary and macroprudential policies. But can they function smoothly in tandem, and with what effects? Since this policy cocktail has not been seen for decades, the empirical evidence is almost non-existent. We can only fix this shortcoming in a historical laboratory. The Radcliffe Report (1959), notoriously skeptical about the efficacy of monetary policy, embodied views which led the UK to a three-decade experiment of using credit controls alongside conventional changes in the central bank interest rate. These non-price tools are similar to policies now being considered or used by macroprudential policymakers. We describe these tools, document how they were used by the authorities, and craft a new, largely hand-collected dataset to help estimate their effects. We develop a novel identification strategy, which we term Factor-Augmented Local Projection (FALP), to investigate the subtly different impacts of both monetary and macroprudential policies. Monetary policy acted on output and inflation broadly in line with consensus views today, but credit controls had markedly different effects and acted primarily to modulate bank lending.JEL codes: E50, G18, N14.

Monetary policy, crisis and capital centralization in corporate ownership and control networks: A B-Var analysis

“…More specifically: a one percent increase in the policy interest rate brings about a reduction in the fraction of top shareholders of net control of about 13 percent in the US and of 5 percent in the Euro Area; and a one percent decrease in the fraction of top shareholders leads to a 1.5 percent contraction of the nominal GDP deviation from its trend in the Euro Area, and a 2.3 percent contraction in the United States. These results seem to give empirical support to the theses according to which monetary policy can have an impact on the centralization of capital Fontana 2013, 2016;Brancaccio, Califano, Lopreite, Moneta 2019; see also Radcliffe Report 1959;Kaldor 1985;Aikman et al 2016) and capital centralization, in turn, can cause economic recession (Hilferding, 1910;Magdoff and Sweezy, 1987;Lazonick, 1992;Crotty, 1993;Sweezy, 1994;Dore, 2008;Foster et al, 2011).…”

“…We intend to verify whether the recent evidences on the increase in centralization of capital in terms of network control (Brancaccio et al 2018) have causal relations with the fluctuations of the GDP around its trend and with monetary policy guidelines in the USA and in the Euro Area between 2001 and 2016. More specifically, we intend to check whether it is possible to find empirical evidences of the theses according to which: 1) monetary policies can have an impact on the solvency conditions in the economic system and the related centralization of capital Fontana 2013, 2016; see also Radcliffe Report 1959;Kaldor 1985;Aikman et al 2016); and 2) capital centralization, in turn, can cause economic depression (Hilferding, 1910;Magdoff and Sweezy, 1987;Lazonick, 1992;Crotty, 1993;Sweezy, 1994;Dore, 2008;Foster et al, 2011). For these scopes, as we shall see in the following sections, we propose an original application of B-VAR analysis on policy interest rates, network control and GDP fluctuations around its trend for USA and Euro Area in the period 2001-2016, before and after the socalled great financial crisis.…”

“…In this regard, it is important to assess whether the trends of capital centralization are related to the financial crisis and the economic policy guidelines. In particular, it may be interesting to check two possible causal relations: whether there are interactions between capital centralization and the tendency towards economic depression (Hilferding, 1910;Magdoff and Sweezy, 1987;Lazonick, 1992;Crotty, 1993;Sweezy, 1994;Dore, 2008;Foster et al, 2011) and whether there are elements supporting the thesis of a possible impact of monetary policy on the solvency conditions in the economic system and the related centralization of capital Fontana 2013, 2016; see also Radcliffe Report 1959;Kaldor 1985;Aikman et al 2016).…”

Breaking the taboo: a history of monetary financing in Canada, 1930–1975

“…More generally, the Bank used its authority to cajole private banks into supporting those sectors of the economy deemed of national importance, in particular small and medium‐sized enterprises and export sectors, via credit controls and moral suasion. Such tools have been out of fashion for many years but, post the financial crisis of 2008, macroprudential policy‐makers are once again looking to this historical period for guidance (Aikman, Bush and Taylor ).…”

Identification and Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments

“… Aikman et al . () use lagged macro factors as controls in local projection OLS regression, which they call factor‐augmented local projections. This method is the local projection counterpart of FAVARs. …”