Monetary and Macroprudential Policy with Multi-Period Loans

32 Pages Posted: 4 May 2015

See all articles by Michal Brzoza-Brzezina

Michal Brzoza-Brzezina

National Bank of Poland; Warsaw School of Economics (SGH)

Paolo Gelain

Norges Bank

Marcin Kolasa

Warsaw School of Economics (SGH)

Date Written: November 24, 2014

Abstract

We study the implications of multi-period loans for monetary and macroprudential policy, considering several realistic modifications – variable vs. fixed loan rates, non-negativity constraint on newly granted loans, and possibility for the collateral constraint to become slack – to an otherwise standard DSGE model with housing and financial intermediaries. Our general finding is that multiperiodicity affects the working of both policies, though in substantially different ways. We show that multi-period contracts make the monetary policy less effective, but only under fixed rate mortgages, and do not generate significant asymmetry to its transmission. In contrast, the effects of macroprudential policy do not depend much on the type of interest payments, but exhibit strong asymmetries, with tightening having stronger effects than easening, especially for short and medium maturities.

Keywords: multi-period contracts, monetary policy, macroprudential policy

JEL Classification: E44, E51, E52

Suggested Citation

Brzoza-Brzezina, Michal and Gelain, Paolo and Kolasa, Marcin, Monetary and Macroprudential Policy with Multi-Period Loans (November 24, 2014). Norges Bank Working Paper 16 | 2014, Available at SSRN: https://ssrn.com/abstract=2602450 or http://dx.doi.org/10.2139/ssrn.2602450

Michal Brzoza-Brzezina (Contact Author)

National Bank of Poland ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH)

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Paolo Gelain

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Marcin Kolasa

Warsaw School of Economics (SGH) ( email )

Al. Niepodleglosci 162
Warsaw, 02-554
Poland

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