Interactions of Monetary and Macroprudential Policies in a Model of the Korean Economy
We use a microfounded dynamic stochastic general equilibrium (DSGE) model with banks to study interactions between monetary and macroprudential policies in a small open economy. The model is calibrated/estimated for Korea. Cooperation of monetary and macroprudential policies is optimal under a financial shock. Prolonged periods of monetary accommodation lead to inflationary pressures, lower the effectiveness of macroprudential instrument (loan-to-value ratio) and contribute to further credit growth, increasing vulnerabilities.
E58 - Central Banks and Their Policies ; E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination ; G28 - Government Policy and Regulation