Monetary and macroprudential policies under rules and discretion

Working Paper No. 702
by Lien Laureys and Roland Meeks

We study the policy design problem faced by central banks with both monetary and macroprudential objectives. We find that a time-consistent policy is often superior to a widely studied class of simple monetary and macroprudential rules. Better outcomes result when interest rates adjust to macroprudential policy in an augmented monetary policy rule.

Working Paper No. 702