Monetary Policy, Macroprudential Policy, and Financial Stability Articles uri icon

publication date

  • August 2019

start page

  • 809

end page

  • 832


  • 11

International Standard Serial Number (ISSN)

  • 1941-1383


  • This review reexamines from a theoretical perspective the role of monetary and macroprudential policies in addressing the build-up of risks in the financial system. We construct a stylized general equilibrium model in which the key friction comes from a moral hazard problem in firmsrsquo financing that banksrsquo equity capital serves to ameliorate. Tight monetary policy is introduced by open market sales of government debt, and tight macroprudential policy by an increase in capital requirements. We show that both policies are useful, but macroprudential policy is more effective in fostering financial stability and leads to higher social welfare


  • bank monitoring; intermediation margin; monetary policy; macroprudential policy; capital requirements; financial stability; jel g21; jel g28; jel e44; jel e52