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  • TaylerZilberman (2016 - Final Version)

    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of Financial Stability. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Stability, 26 C, 2016 DOI: 10.1016/j.jfs.2016.08.001

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Macroprudential regulation, credit spreads and the role of monetary policy

Research output: Contribution to journalJournal article

Published
<mark>Journal publication date</mark>10/2016
<mark>Journal</mark>Journal of Financial Stability
Issue numberC
Volume26
Number of pages15
Pages (from-to)144-158
Publication statusPublished
Early online date12/09/16
Original languageEnglish

Abstract

We study the macroprudential roles of bank capital regulation and monetary policy in a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs. These frictions induce financial accelerator mechanisms and motivate the examination of a macroprudential toolkit. Following credit shocks, countercyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability. For supply shocks, combining macroprudential regulation with a stronger anti-inflationary policy stance is optimal. The findings emphasize the importance of the Basel III accords in alleviating the output-inflation trade-off faced by central banks, and cast doubt on the desirability of conventional (and unconventional) Taylor rules during periods of financial distress

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of Financial Stability. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Stability, 26 C, 2016 DOI: 10.1016/j.jfs.2016.08.001