Analysis of the financial stability role of extended monetary policy and macroprudential supervision

Analysis of the financial stability role of extended monetary policy and macroprudential supervision


Author:Li Tianyu;Zhang Yishan;Zhang He Journal: Date:

Facts have proved that whether traditional monetary policy or microprudential regulation can truly maintain the stability of the financial system in response to the financial crisis. As a result, extended monetary policy with the policy objective of stabilizing credit markets has been widely discussed in the post-crisis period, along with countercyclical macroprudential regulation. This paper simulates and deduces the policy effects of extended monetary policy and macroprudential supervision and their financial stability effects under the framework of the DSGE model of heterogeneous consumers, and concludes as follows: First, although the tools and transmission paths of the two on the credit market are different, they can alleviate the phenomenon of high credit leverage in the economic upward range, inhibit the accumulation of systemic risks and promote financial stability; Second, the intrinsic link between financial stability and price stability makes it unnecessary to include a focus on financial stability in monetary policy rules at the expense of price stability; Third, when the two policies are used jointly, there will be overlapping interference of policies, but the unified supervision and use of the central bank can avoid this problem and obtain better policy effects.

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