Optimal Macroprudential Policy

Ko Munakata, Koji Nakamura and Yuki Teranishi

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We introduce financial market friction through search and matching in the loan market into a standard New Keynesian model. We reveal that the second order approximation of social welfare includes the terms related to credit, such as credit market tightness, the volume of credit, and the loan separation rate, in addition to the inflation rate and consumption under financial market friction. Our analytical result justifies why optimal policy should take credit variation into account. We introduce monetary policy and macroprudential policy measures for financial stability into the model. The optimal outcome is achieved through monetary and macroprudential policies by taking into account not only price stability but also financial stability.

Keywords: Optimal macroprudential policy; optimal monetary policy; financial market friction (search for similar items in EconPapers)
JEL-codes: E44 E52 E61 (search for similar items in EconPapers)
Pages: 6 pages
Date: 2013-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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https://cama.crawford.anu.edu.au/files/publication ... kamura_teranishi.pdf (application/pdf)

Related works:
Working Paper: Optimal Macroprudential Policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2013-51

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