A Primer on Macroprudential Policy

Poutineau, J. C., & Vermandel, G. (2015). A Primer on Macroprudential Policy. The Journal of Economic Education, 46(1), 68-82.

24 Pages Posted: 26 Sep 2015

See all articles by Jean‐Christophe Poutineau

Jean‐Christophe Poutineau

Université de Rennes 1

Gauthier Vermandel

CMAP, Ecole polytechnique, Institut Polytechnique de Paris; LEDa, Paris-Dauphine & PSL Universities; Banque de France

Date Written: October 14, 2014

Abstract

This paper introduces macroprudential policy using a static New Keynesian Macroeconomics model with financial frictions. We analyze two related questions: First, we show how the pro cyclicality of financial factors captured by the financial accelerator amplifies the transmission of supply and demand shocks and impacts the intuition we get from a basic intermediate macroeconomics. Second, adopting an optimal policy perspective, we show how a policymaker may use macroprudential policy to complete monetary policy measures. Following the Mundellian Policy Assignment principle, macroprudential policy should be specialized to address the pro cyclicality problem to suppress welfare losses associated with the building of financial imbalances, thus helping monetary policy to concentrate on the output inflation trade-off.

Keywords: monetary policy, macroprudential policy, New Keynesian macroeconomics, financial frictions, optimal interest rate rules

JEL Classification: A20, E10, E50, F41

Suggested Citation

Poutineau, Jean-Christophe and Vermandel, Gauthier, A Primer on Macroprudential Policy (October 14, 2014). Poutineau, J. C., & Vermandel, G. (2015). A Primer on Macroprudential Policy. The Journal of Economic Education, 46(1), 68-82., Available at SSRN: https://ssrn.com/abstract=2665579

Jean-Christophe Poutineau

Université de Rennes 1 ( email )

11 Rue Jean Macé
Rennes, Rennes 35700
France

Gauthier Vermandel (Contact Author)

CMAP, Ecole polytechnique, Institut Polytechnique de Paris ( email )

Route de Saclay
Palaiseau, 91128
France

LEDa, Paris-Dauphine & PSL Universities ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Banque de France ( email )

Paris
France

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