Monetary and Macro-prudential Policies

Transcription

1 Moneary and Macro-prudenial Policies P. Angelini, S. Neri and F. Panea Banca d Ialia Conference on The Fuure of Moneary Policy EIEF Rome, Sepember 3 Ocober 1 1 The usual disclaimer applies

2 Ouline 1. Moivaion and objecive. Model 3. Macroprudenial and moneary policies 4. Ineracion 5. Resuls 6. Robusness 7. Conclusions

3 1. Moivaion and objecive Financial crisis has promped an inense debae on role of macroprudenial (MP) policy Srucural reform has followed (ESRB and FSOC) Agreemen ha MP policy should ackle sysemic risk No agreemen on how o conduc MP policy. Main reason: sysemic risk very hard o (i) model in macro framework (ii) measure and (iii) forecas

4 1. Moivaion and objecive (con d) Paper sudies ineracion beween MP and moneary policies in a model wih financial fricions and a banking secor Focus on counercyclical MP policy (leaning agains financial cycle), closely relaed o moneary policy Boh MP policy and moneary policy aim a moderaing business cycle flucuaions MP and moneary policies influence each oher hrough heir effecs on credi and asse prices

5 1. Moivaion and objecive (con d) Key quesions: Could macroprudenial policy usefully co-operae wih moneary policy? In which circumsances? Or, would macroprudenial policy be redundan? Could here be a conflic beween he wo policies?

6 . Model New Keynesian core wih real and nominal fricions Financial fricions and heerogeneous agens Housing as collaeral for loans by households, physical capial for loans o enrepreneurs Monopolisic compeiion in banking secor Banks raise deposis and gran loans; bank capial affecs supply of loans See Gerali e al. (1) Credi and Banking in a DSGE Model of he euro area

7 Gerali e al. (1): This paper: ν b L K a. Model (con d) Basel II weighs + H H F F b L w L w K a ν Time-varying capial requiremen

8 3. How o model MP policy? Modeling MP policy (objecives and insrumens) is no easy ask: Sysemic risk is an elusive concep, hard o model and measure. Which objecive in pracice? Choice of insrumen depends on ype of shock So far, no heory and lile pracical experience Our approach: revealed preferences. Rely on goals saed and acions planned or aken by policymakers

9 3. MP policy: objecives BoE (9): MP policy should ensure he sable provision of financial inermediaion services o he wider economy, [avoiding] he boom and bus cycle in he supply of credi Assume MP policy sabilizes credi/oupu raio (L/Y) Empirical and heoreical jusificaion: Abnormal credi expansions lead financial crises (Borio and Drehmann, 9) Credi exernaliies may induce privae agens o over borrow (e.g. Bianchi, 1, Benigno e al., 1 and Jeanne and Korinek, 1)

10 3. MP policy: objecives (con d) CGFS (1): MP policy should aim a miigaing he...risk of a disrupion of financial services ha... has he poenial o have serious negaive consequences for he real economy Assume ha MP policy sabilizes oupu (Y) Hence, assume following loss for MP auhoriy mp k σ k L / y y, mp Y dν L = σ + + νσ

11 3. MP policy: insrumens Assume insrumen of MP policy is bank capial requiremen ν ( 1 ρ ) ( 1 ) ν ν + ρν χν + ρν 1 = X ν Sysemic crises affec bank capial and credi supply Wide agreemen in policy debae (Basel III) Similar ools used in pracice (Spain, dynamic provisioning) Exercises replicaed using loan-o-value (LTV) raio as insrumen

12 3. Moneary policy Cenral bank ses ineres rae: R ( 1 ρ ) ( 1 )[ ( ) ( ) ] R R + ρr χπ π π + χy y y 1 + ρrr 1 = Cenral bank aims a sabilizing oupu and inflaion: L cb σ π y, cb y = + k σ + k σ r Δr

13 4. Ineracion Ineracion beween moneary and macroprudenial policies is sudied in: Cooperaive case a single policymaker has wo insrumens, policy rae and capial requiremens (or LTV) Non-cooperaive case each policymaker has her own insrumen and objecive See Pei (1989) and Dixi and Lamberini (3)

14 4. Ineracion (con d) Cooperaive case: responsibiliy for macroprudenial policy is assigned o cenral bank Parameers of wo policy rules are chosen as o minimize: ( k + k ) cb mp L= L + L = σ π + σl / y + y, cb y, mp σy + krσ Δr + kν σd ν

15 Non-cooperaive case: each policy-maker minimizes her loss funcion aking rule of oher as given 4. Ineracion (con d) ), ;,, ( argmin ),, ( * * * * * n n y R cb n y n n R L ν ν π π χ ρ χ χ ρ χ χ ρ = ), ;,, ( argmin ), ( * * * * * ν ν π ν ν χ ρ χ χ ρ χ ρ n y n n R mp n n L =

16 5. Resuls: echnology shocks Cooperaive case: moneary and MP policies are counercyclical Non-cooperaive case: MP is procyclical, moneary policy counercyclical Non-cooperaive soluion may generae coordinaion problems inefficien flucuaions in policy rae

17 5. Resuls: echnology shocks (con d) Differences (beween wo cases) in volailiies of arge variables are small; large differences in volailiy of policy insrumens Usefulness of MP policy is negligible, relaive o case in which here is only moneary policy In normal imes moneary policy alone is sufficien

18 4 Capial requiremens Policy rae Capial/asses raio. Oupu Cooperaive Non cooperaive Only moneary policy Loans-o-oupu raio.6 Inflaion Loan rae. Loans

19 4 Capial requiremens Policy rae Capial/asses raio. Oupu Cooperaive Non cooperaive Only moneary policy Loans-o-oupu raio.6 Inflaion Loan rae. Loans

20 4 Capial requiremens Policy rae Capial/asses raio. Oupu Cooperaive Non cooperaive Only moneary policy Loans-o-oupu raio.6 Inflaion Loan rae. Loans

21 5. Resuls: echnology shocks (con d) Why does conflic arise? Swich in MP policy (from counercyclical o procyclical; conflic ) is due o Y and L/Y moving in opposie direcions Direc consequences of specificaion of loss funcion Conflic does no ake place under shocks ha move Y and L/Y in same direcion or when objecives of MP and moneary policy are well aligned Bu conflic may always arise as long as financial sabiliy is an objecive

22 4 Capial requiremens Policy rae Capial/asses raio. Oupu Cooperaive Non cooperaive Only moneary policy Loans-o-oupu raio.6 Inflaion Loan rae. Loans

23 5. Resuls: financial shocks We also consider financial shocks modeled as an exogenous desrucion of bank capial These shocks have a significan impac on real economy hrough heir effec on supply of loans and on bank raes We complemen financial shocks wih a shock o households preferences, o capure decline in consumers confidence ha characerized financial crisis

24 5. Resuls: financial shocks (con d) MP auhoriy gains from cooperaion, cenral bank loses Cenral bank deviaes from sric adherence o her objecives o lend a hand o financial sabiliy Cooperaion leads o lower volailiy of oupu (1%) and of loans-o-oupu raio (5%), paid for wih a much larger volailiy of policy rae

25 Capial requiremens. Policy rae Capial/asses raio Oupu Cooperaive Non cooperaive Only moneary policy Loans-o-oupu raio 6 x Inflaion Loan rae Loans

26 Capial requiremens. Policy rae Capial/asses raio Oupu Cooperaive Non cooperaive Only moneary policy Loans-o-oupu raio 6 x Inflaion Loan rae Loans

27 Capial requiremens. Policy rae Capial/asses raio Oupu Cooperaive Non cooperaive Only moneary policy Loans-o-oupu raio 6 x Inflaion Loan rae Loans

28 Capial requiremens. Policy rae Capial/asses raio Oupu Cooperaive Non cooperaive Only moneary policy Loans-o-oupu raio 6 x Inflaion Loan rae Loans

29 Capial requiremens. Policy rae Capial/asses raio Oupu Cooperaive Non cooperaive Only moneary policy Loans-o-oupu raio 6 x Inflaion Loan rae Loans

30 6. Robusness Robusness of resuls has been esed along several dimensions: alernaive ool: LTV raios on loans o households wih housing demand shocks parameerizaions of loss funcions specificaions of loss funcions specificaions for macroprudenial policy rule alernaive shocks: demand and all shocks

31 7. Conclusions Paper represens an aemp a organizing discussion on couner-cyclical macroprudenial (MP) policies, focusing on ineracion beween moneary and macroprudenial policies Two cases: cooperaive and non-cooperaive Considers also case wih only moneary policy

32 7. Conclusions (con d) In normal imes, for example, when economic cycle is driven by supply shocks: Usefulness of MP policy is limied, relaive o a moneary policy-only scenario Non-cooperaive soluion migh generae subsanial coordinaion problems wih inefficien flucuaions in policy insrumens European framework (ESRB) well-suied o address his problem

33 7. Conclusions (con d) In excepional imes (financial shocks, or secoral shocks, i.e. o housing marke) Usefulness of MP policy becomes significan, relaive o moneary policyonly case Two policies, if properly coordinaed, can aain sizeable benefis in erms of sabilizaion of economy

34 Thank you

35 . Model (con d) Varying capial-o-asses raio is cosly Quadraic erm capures (in a reduced form, ad hoc way) rade-offs involved wih holding bank capial b b b K K R = r κ ν + L L mkp r policy rae, K b bank capial, L oal loans, ν capial requiremen The lower he capial asse raio, he higher he ineres rae charged on loans

36 1. Moivaion and objecive (con d) Sysemic risk is a risk of disrupion o financial services ha is caused by an impairmen of all or pars of he financial sysem and has he poenial o have serious negaive consequences for he real economy (definiion adoped by G) Definiion is vague and dependen on ime- and economy-specific circumsances Hard o model in a macroeconomic framework

37 Table 1 Ineracion beween moneary and macro-prudenial policies: echnology shocks Cooperaive equilibrium Noncooperaive equilibrium Moneary policy only (no macroprudenial policy) Moneary policy ρ R χ π χ y Macroprudenial ρ ν χ ν Join loss (4.1).135 (.5) R ρ R R 1 + ( 1 ρ R )[ χ π π + χ y ( y y 1 )] ν = ( 1 ρν ) ν + ( 1 ρν ) χν X + ρνν 1 =

38 Table 1 Ineracion beween moneary and macro-prudenial policies: echnology shocks Cooperaive equilibrium Noncooperaive equilibrium Moneary policy only (no macroprudenial policy) Moneary policy ρ R χ π χ y Macroprudenial ρ ν χ ν Join loss (4.1).135 (.5) R ρ R R 1 + ( 1 ρ R )[ χ π π + χ y ( y y 1 )] ν = ( 1 ρν ) ν + ( 1 ρν ) χν X + ρνν 1 =

39 Table 1 Ineracion beween moneary and macro-prudenial policies: echnology shocks Cooperaive equilibrium Noncooperaive equilibrium Moneary policy only (no macroprudenial policy) Moneary policy ρ R χ π χ y Macroprudenial ρ ν χ ν Join loss (4.1).135 (.5) R ρ R R 1 + ( 1 ρ R )[ χ π π + χ y ( y y 1 )] ν = ( 1 ρν ) ν + ( 1 ρν ) χν X + ρνν 1 =