On the Interaction between Monetary and Macroprudential Policies

Abstract

This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. No 2527 / February 2021 Discussion papersDiscussion papers are research-based papers on policy relevant topics. They are singled out from standard Working Papers in that they offer a broader and more balanced perspective. While being partly based on original research, they place the analysis in the wider context of the literature on the topic. They also consider explicitly the policy perspective, with a view to develop a number of key policy messages. Their format offers the advantage that alternative analyses and perspectives can be combined, including theoretical and empirical work.Discussion papers are written in a style that is more broadly accessible compared to standard Working Papers. They are light on formulas and regression tables, at least in the main text.The selection and distribution of discussion papers are subject to the approval of the Director General of the Directorate General Research.

The Risk-Taking Channel and Monetary Transmission Mechanisms in Indonesia

“…This can be drawn from the conditions and status of the Indonesian state as a small open economy so that it is very vulnerable to external shocks. The last and most recent findings of Martin, et. al (2021) state that macroprudential policy and monetary policy are largely interdependent.…”

Borrower- and Lender-Based Macroprudential Policies: What Works Best Against Bank Systemic Risk?

“…This raised important questions for monetary policy. According to Martin et al (2021), macroprudential policies apply to interventions that attempt to correct any excessive risk coming from the systemic risk part of the banking sector and raised by certain factors, such as monetary policy. At the same time, given that macroprudential policies are generally incomplete, this raises the significance of the necessary optimal adjustments to monetary policy to deal not just with its traditional business regarding nominal rigidities, but also with the distortions coming from systemic risk and that cannot be appropriately addressed by macroprudential policy.…”

Cascading bankruptcies under simultaneous sectorial shocks: Theory and application to the Tunisian banking sector

“…In this context, it is clear that central banks will try to contain the increasing of systemic risk and speed up the recovery in case of banking crises. Martin et al (2022) distinguishes two types of policy interventions: during the build-up of a banking crisis (ex-ante) and in the crisis phase (ex post). The former are 'preventive' (such as the activation of capital buffers or loan-to-value ratios) and aim to reduce the likelihood of crisis occurrence and/or its severity.…”