How Complementary Are Prudential Regulation and Monetary Policy?

Could either monetary policy or financial prudential regulation be relied on individually to mitigate asset price cycles or their effects? If both ways are effective, monetary policy and prudential regulation could then be considered 'substitutes,' in the sense that the individual use of either instrument leads to a reduction in the volatility of both corresponding targets. This note, however, argues in favor of complementarily rather than substitution in the use of monetary and macro-prudential policies: the combined (articulate) use of both policies tends to be more effective than a standalone implementation of either.

Bibliographic Details

Main Author:	Canuto, Otaviano
Format:	Brief biblioteca
Language:	English
Published:	World Bank, Washington, DC 2011-06
Subjects:	ACCUMULATION OF RESERVES, AGGREGATE DEMAND, ARBITRAGE, ASSET PRICE, ASSET PRICE BOOMS, ASSET PRICE BUBBLES, ASSET PRICES, ASSETS, BALANCE SHEET, BALANCE SHEETS, BANK BALANCE SHEETS, BANK CAPITAL, BANK FOR INTERNATIONAL SETTLEMENTS, BANK GOVERNORS, BANK LENDING, BANK LIQUIDITY, BANK PANICS, BANK POLICY, BANKING CRISES, BANKING CRISIS, BANKING SUPERVISION, BANKING SYSTEM, BORROWER, BORROWING, BORROWING COSTS, BUFFER, BUFFERS, BUSINESS CYCLES, CAPITAL ADEQUACY, CAPITAL INFLOWS, CAPITAL REGULATION, CAPITAL STANDARDS, CAPITALIZATION, CENTRAL BANK, CENTRAL BANKING, CENTRAL BANKS, COMPLEX SECURITIES, CONSUMER PRICE INDEX, CONSUMER PROTECTION, CONTAGION, CORNER SOLUTIONS, CREDIBILITY, CREDIT BOOMS, CREDIT EXPANSION, CREDIT GROWTH, CREDIT MARKET, CREDIT MARKETS, CURRENCY MISMATCHES, CURRENCY RISK, DEBT, DEMAND GROWTH, DEPOSIT, DEPOSITORS, DERIVATIVES, DERIVATIVES TRANSACTIONS, DISTORTIONS, DOMESTIC CREDIT, DOMESTIC CREDIT GROWTH, DUE DILIGENCE, ECONOMIC POLICY, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET ECONOMIES, EMERGING MARKETS, EMPLOYMENT, EXCESS LIQUIDITY, EXCHANGE RATE, EXPOSURES, EXTERNAL FUNDING, EXTERNALITIES, FEDERAL RESERVE, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DEEPENING, FINANCIAL FRAGILITY, FINANCIAL INSTABILITY, FINANCIAL INSTITUTIONS, FINANCIAL MARKETS, FINANCIAL REGULATION, FINANCIAL RISKS, FINANCIAL SERVICES, FINANCIAL STABILITY, FINANCIAL STABILITY OBJECTIVES, FINANCIAL STABILITY POLICY, FINANCIAL SYSTEM, FINANCIAL VARIABLE, FOREIGN CAPITAL, FOREIGN CURRENCY, FOREIGN CURRENCY LENDING, GENERAL EQUILIBRIUM, GLOBAL BANKING, GLOBAL ECONOMY, GLOBAL FINANCIAL SYSTEM, GLOBAL LIQUIDITY, HIDDEN RISK, HOUSEHOLD DEBT, HOUSING, HOUSING LOANS, INCENTIVE STRUCTURE, INCOME, INDIVIDUAL FIRMS, INFLATION, INFLATION OBJECTIVE, INFLATION RATES, INFLATION TARGETING, INFLATION TARGETING FRAMEWORK, INFLATIONARY PRESSURE, INFLATIONARY PRESSURES, INSTRUMENT, INTEREST RATE, INTEREST RATE POLICY, INTEREST RATES, INTERNATIONAL BANKING, INTERNATIONAL MARKETS, INTERNATIONAL SETTLEMENTS, INTERNATIONAL STANDARDS, INVESTMENT PURPOSES, LENDING LIMITS, LEVERAGE, LEVIES, LIABILITY, LIQUIDITY REQUIREMENTS, LIQUIDITY RISK, LOAN, LOCAL MARKET, MACROECONOMIC FLUCTUATIONS, MACROECONOMIC INSTABILITY, MACROECONOMIC MODELS, MACROECONOMIC POLICIES, MACROECONOMIC STABILITY, MACROECONOMIC VARIABLES, MACROECONOMICS, MARKET PARTICIPANTS, MATURITY, MATURITY STRUCTURE, MINIMUM CAPITAL REQUIREMENT, MINIMUM CAPITAL REQUIREMENTS, MONETARY AUTHORITIES, MONETARY FUND, MONETARY POLICY, MONETARY POLICY FRAMEWORK, MORAL HAZARD, MORTGAGE, MORTGAGES, OUTPUT, OUTPUT GAPS, POLITICAL ECONOMY, PORTFOLIO, PORTFOLIO FLOWS, PORTFOLIOS, POVERTY REDUCTION, PRICE DISTORTIONS, PRICE FLUCTUATIONS, PRICE HIKES, PROBABILITY OF DEFAULT, PRODUCTIVITY, PRUDENTIAL REGULATION, PRUDENTIAL REGULATIONS, PUSH FACTORS, RAPID CREDIT EXPANSION, RAPID GROWTH, RATE MOVEMENTS, REAL ESTATE, REAL ESTATE AS COLLATERAL, REGULATORS, REGULATORY REFORM, REGULATORY REFORMS, REGULATORY STANDARDS, RELATIVELY LOW INFLATION, REMUNERATION, REPAYMENT, RESERVE, RESERVE ACCUMULATION, RESERVE REQUIREMENTS, RESERVES, RISK ASSESSMENTS, RISK MANAGEMENT, RISK PREMIA, RISK TAKING, RISK WEIGHTS, SALES OF ASSETS, SECURITIZATION, SHORT-TERM DEPOSITS, STABLE GROWTH, STABLE INFLATION, STOCK MARKET, STRONG DEMAND, SURCHARGES, SYSTEMIC RISK, SYSTEMIC RISKS, TERMS OF CAPITAL, TIER 1 CAPITAL, TRANSMISSION MECHANISM, UNCERTAINTY, VOLATILITY, WEIGHTS, WORLD ECONOMY,
Online Access:	http://documents.worldbank.org/curated/en/2011/06/14381200/complementary-prudential-regulation-monetary-policy http://hdl.handle.net/10986/10089
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