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In this paper, we use a DSGE model to study the passive and time-varying implementation of macroprudential policy when policymakers have noisy and lagged data, as commonly observed in lowincome and developing countries (LIDCs). The model features an economy with two agents; households and entrepreneurs. Entrepreneurs are the borrowers in this economy and need capital as collateral to obtain loans. The macroprudential regulator uses the collateral requirement as the policy instrument. In this set-up, we compare policy performances of permanently increasing the collateral requirement (passive policy) versus a time-varying (active) policy which responds to credit developments. Results show that with perfect and timely information, an active approach is welfare superior, since it is more effective in providing financial stability with no long-run output cost. If the policymaker is not able to observe the economic conditions perfectly or observe with a lag, a cautious (less aggressive) policy or even a passive approach may be preferred. However, the latter comes at the expense of increasing inequality and a long-run output cost. The results therefore point to the need for a more careful consideration toward the passive policy, which is usually advocated for LIDCs.
Credit. --- Borrowing --- Finance --- Money --- Loans --- Finance: General --- Macroeconomics --- Industries: Financial Services --- Financial Markets and the Macroeconomy --- Business Fluctuations --- Cycles --- General Financial Markets: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Aggregate Factor Income Distribution --- Macroeconomics: Consumption --- Saving --- Wealth --- Financial sector stability --- Macroprudential policy --- Collateral --- Income inequality --- Consumption --- Financial services industry --- Economic policy --- Income distribution --- Economics
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Macroprudential policy is perhaps the most important new development in central bank policymaking circles since the global financial crisis, and reliance on such policies has continued to spread. The crisis, which showed the limits of conventional monetary policy as a tool to deal with financial stability, forced a wide-ranging rethink of economic policies, their interactions and their repercussions. It has led to new forms of intervention, of regulation and of supervisory practice. Macroprudential regulation is now one of the most important topics in modern macroeconomics, because it concerns measures put in place to reduce the risks and costs of the instability caused by financial crises. Written by senior figures from the worlds of academia and banking, this volume combines theoretical approaches with hard evidence of the policy's achievements in many countries. It is the first in-depth analysis of macroprudential instruments for policymakers, banks and economists.
Monetary policy --- Banks and banking, Central --- Economic policy --- 333.139.0 --- Economic nationalism --- Economic planning --- National planning --- State planning --- Economics --- Planning --- National security --- Social policy --- Banker's banks --- Banks, Central --- Central banking --- Central banks --- Banks and banking --- Monetary management --- Currency boards --- Money supply --- Controle en nationalisatie van de banken: algemeen --- Monetary policy. --- Banks and banking, Central. --- Economic policy.
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