Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208331
Authors: 
Martinez-Miera, David
Repullo, Rafael
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper No. 2297
Abstract: 
This paper reexamines from a theoretical perspective the role of monetary and macroprudential policies in addressing the build-up of risks in the financial system. We construct a stylized general equilibrium model in which the key friction comes from a moral hazard problem in firms' financing that banks' equity capital serves to ameliorate. Tight monetary policy is introduced by open market sales of government debt, and tight macroprudential policy by an increase in capital requirements. We show that both policies are useful, but macroprudential policy is more effective in fostering financial stability and leads to higher social welfare.
Subjects: 
Bank monitoring
intermediation margin
monetary policy
macroprudential policy
capital requirements
financial stability
JEL: 
G21
G28
E44
E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3559-3
Document Type: 
Working Paper

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