How Complementary Are Prudential Regulation And Monetary Policy?

Could either monetary policy or financial prudential regulation be relied on individually to mitigate asset price cycles or their effects? If both ways are effective, monetary policy and prudential regulation could then be considered "Substitutes," in the sense that the individual use of either instrument leads to a reduction in the volatility of both corresponding targets. This paper, however, argues in favor of complementarity - rather than substitution - in the use of monetary and macroprudential policies: the combined (articulate) use of both policies tends to be more effective than a standalone implementation of either.

Provided by: The World Bank Topic: CXO Date Added: Jun 2011 Format: PDF

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