Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/174186 
Year of Publication: 
2016
Series/Report no.: 
IES Working Paper No. 19/2016
Publisher: 
Charles University in Prague, Institute of Economic Studies (IES), Prague
Abstract: 
This paper sheds some light on situations in which monetary and macroprudential policies may interact (and potentially get into conflict) and contributes to the discussion about the coordination of those policies. Using data for the Czech Republic and five euro area countries we show that monetary tightening has a negative impact on the credit-to-GDP ratio and the non-risk-weighted bank capital ratio (i.e. a positive impact on bank leverage), while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build-up of financial vulnerabilities, i.e. it boosts the credit cycle. On the other hand, the effect of the higher bank capital ratio is associated with some degree of uncertainty. For these and other reasons, coordination of the two policies is necessary to avoid an undesirable policy mix preventing effective achievement of the main objectives in the two policy areas.
Subjects: 
Bayesian estimation
financial stability
macroprudential policy
monetary policy
time-varying panel VAR model
JEL: 
E52
E58
E61
G12
G18
Document Type: 
Working Paper

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