Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/228990
Authors: 
Cozzi, Guido
Darracq Pariès, Matthieu
Karadi, Peter
Körner, Jenny
Kok Sørensen, Christoffer
Mazelis, Falk
Nikolov, Kalin
Rancoita, Elena
Van der Ghote, Alejandro
Weber, Julien
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2376
Abstract: 
This paper examines the interactions of macroprudential and monetary policies. We find, using a range of macroeconomic models used at the European Central Bank, that in the long run, a 1% bank capital requirement increase has a small impact on GDP. In the short run, GDP declines by 0.15-0.35%. Under a stronger monetary policy reaction, the impact falls to 0.05-0.25%. The paper also examines how capital requirements and the conduct of macroprudential policy affect the monetary transmission mechanism. Higher bank leverage increases the economy's vulnerability to shocks but also monetary policy's ability to offset them. Macroprudential policy diminishes the frequency and severity of financial crises thus eliminating the need for extremely low interest rates. Counter-cyclical capital measures reduce the neutral real interest rate in normal times.
Subjects: 
Monetary Policy
Bank Stability
Credit
JEL: 
E4
E43
E5
E52
G20
G21
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4019-1
Document Type: 
Working Paper

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