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Disinflation Costs and Macroprudential Policies: Real and Welfare Effects

Author

Listed:
  • Busato, Francesco
  • Ferrara, Maria
  • Varlese, Monica
Abstract
This paper investigates the costs of disinflation in an otherwise standard DSGE model with borrowing constraints and credit frictions, augmented with macroprudential authority. Analyzing the real and welfare effects of a permanent change in the inflation rate, we study the role of macroprudential policy and its interaction with monetary policy in ensuring financial stability. Results show that when macroprudential authority intervenes actively in order to improve financial stability, disinflation costs are limited. As for the welfare effects, disinflation is welfare improving for savers but welfare costly for borrowers and banks.

Suggested Citation

  • Busato, Francesco & Ferrara, Maria & Varlese, Monica, 2022. "Disinflation Costs and Macroprudential Policies: Real and Welfare Effects," MPRA Paper 112272, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:112272
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    References listed on IDEAS

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    More about this item

    Keywords

    Disinflation; Macroprudential policy; Loan-to-value ratio; Monetary policy; Sacrifice ratio; Welfare effects;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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