Economics
Leaning against the wind, but how? Monetary policy versus macro-prudential measures
F Gulcin Ozkan University of York and Filiz Unsal IMF
19 September 2012
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Leaning against the wind, but how? Monetary policy versus September 2012 measures 19 macro-prudential 1 / 28
Plan of the talk
Motivation - ’ lean versus clean’debate prior to and in the aftermath of the 2008-2009 global …nancial crisis (GFC) An overview of how our basic model works Basic model Simulation Results Welfare analysis and optimal policy Conclusions
(University of York)
Leaning against the wind, but how? Monetary policy versus September 2012 measures 19 macro-prudential 2 / 28
Main motivation
2008/2009 experience led to a serious re-think of how monetary policy should be conducted. The conventional wisdom prior to GFC was ’ better to clean up after the buble bursts’so clean rather than lean due to the di¢ culty in identifying which asset prices to target the di¢ culty in identifying the ’ right’prices to target the di¢ culty in trading o¤ multiple goals agains the policy rate and the notion that the cost of cleaning up after the buble bursts would not be too large.
The GFC was preceeded by …nancial vulnerabilities particularly in the housing and credit markets. Role of monetary policy in the build up of the asset price buble.
(University of York) Leaning against the wind, but how? Monetary policy versus September 2012 measures 19 macro-prudential 3 / 28
Main motivation cont.
It is now recognized that price stability is not su¢ cient for …nancial stability. Potential costs of …nancial crises (as documented by Reinhart and Rogo¤, 2009) point to the importance of preserving …nancial stability. Macro-prudential measures are recommended to reduce the systemic risk - procyclical behaviour of …nancial markets. EMs experiences - following their own crisis experiences throughout 1990s New arrangements in mature economies; How best to design macro policy: monetary versus
F Gulcin Ozkan University of York and Filiz Unsal IMF
19 September 2012
()
Leaning against the wind, but how? Monetary policy versus September 2012 measures 19 macro-prudential 1 / 28
Plan of the talk
Motivation - ’ lean versus clean’debate prior to and in the aftermath of the 2008-2009 global …nancial crisis (GFC) An overview of how our basic model works Basic model Simulation Results Welfare analysis and optimal policy Conclusions
(University of York)
Leaning against the wind, but how? Monetary policy versus September 2012 measures 19 macro-prudential 2 / 28
Main motivation
2008/2009 experience led to a serious re-think of how monetary policy should be conducted. The conventional wisdom prior to GFC was ’ better to clean up after the buble bursts’so clean rather than lean due to the di¢ culty in identifying which asset prices to target the di¢ culty in identifying the ’ right’prices to target the di¢ culty in trading o¤ multiple goals agains the policy rate and the notion that the cost of cleaning up after the buble bursts would not be too large.
The GFC was preceeded by …nancial vulnerabilities particularly in the housing and credit markets. Role of monetary policy in the build up of the asset price buble.
(University of York) Leaning against the wind, but how? Monetary policy versus September 2012 measures 19 macro-prudential 3 / 28
Main motivation cont.
It is now recognized that price stability is not su¢ cient for …nancial stability. Potential costs of …nancial crises (as documented by Reinhart and Rogo¤, 2009) point to the importance of preserving …nancial stability. Macro-prudential measures are recommended to reduce the systemic risk - procyclical behaviour of …nancial markets. EMs experiences - following their own crisis experiences throughout 1990s New arrangements in mature economies; How best to design macro policy: monetary versus