Interaction of Monetary and Macroprudential Policies in Developing Economies

38 Pages Posted: 11 Apr 2016

See all articles by Allan Wright

Allan Wright

Central Bank of Barbados

Francisco Ramirez de Leon

Central Bank of the Dominican Republic

Rumile Arana

Central Bank of Belize

Date Written: April 15, 2015

Abstract

Our paper addresses the issue of the interaction between monetary and macroprudential policies in small open economies for different exchange rate regimes. The need for macroprudential policy arises from exacerbated macroeconomic fluctuations due to frictions in the financial system as in Bernanke, Gertler and Gilchrist (1999). Understanding these dynamics in developing nations has been even more important after the most recent events of the Great Recession. Policy makers within the scrutinized economies will see the exact magnitude of shocks caused by changes in financial frictions, monetary and macroprudential policy. Exchange rate considerations are also brought to the fore, by assessing the effects of these policies on two emerging economies from the Caribbean with differing monetary policy frameworks. Despite differences between flexible and fear of floating exchange rate regimes, macroprudential policies implementation help mitigate the effects of credit supply shocks affecting regional economies.

Keywords: Monetary Policy, Macroprudential Policy, Interest Rates, Capital Controls and Flows, DSGE

JEL Classification: E44, E52, E61, F41

Suggested Citation

Wright, Allan and Ramirez de Leon, Francisco and Arana, Rumile, Interaction of Monetary and Macroprudential Policies in Developing Economies (April 15, 2015). Central Bank of Barbados WP/15/2, Available at SSRN: https://ssrn.com/abstract=2761012

Allan Wright (Contact Author)

Central Bank of Barbados ( email )

Tom Adams Financial Centre
Bridgetown
Barbados

Francisco Ramirez de Leon

Central Bank of the Dominican Republic ( email )

Post Office Box 1347, Calle Pedro Henríquez Ureña
esq. Leopoldo Navarro
Santo Domingo
Dominican Republic

Rumile Arana

Central Bank of Belize ( email )

Gabourel Lane
Belize City
Belize

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