Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174475
Authors: 
Roldán-Peña, Jessica
Torres-Ferro, Mauricio
Torres García, Alberto
Year of Publication: 
2017
Series/Report no.: 
Working Papers, Banco de México 2017-22
Abstract: 
This paper studies the trade-offs that can arise between inflation targeting and financial stability objectives. We use a simple framework to conduct macroeconomic policy analysis under three strategies: (1) a benchmark case where monetary policy pursues traditional price stability objectives; (2) monetary policy leaning against the wind; and (3) a case of policy coordination between monetary and macroprudential instruments. We find that, under certain circumstances, having financial stability objectives as an additional macroeconomic policy increases the volatility of inflation. We identify cases in which the tradeoffs in terms of macroeconomic volatility between policy objectives create scope for improvement when monetary and macroprudential policies are coordinated. These improvements are generally larger when financial shocks are the main driver of macroeconomic fluctuations.
Subjects: 
Price and Financial Stability
Leaning Against the Wind
Monetary and Macroprudential Policy Coordination
JEL: 
E44
E52
E61
G28
Document Type: 
Working Paper
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