Interacting prudential and monetary policies: financial stability from the bottom up
Joeri Schasfoort, Antoine Godin, Dirk Bezemer, Alessandro Caiani and Stephen Kinsella
Abstract:
We present a stock-flow consistent, agent-based model (SFC-ABM, for short) building on work by Caiani et al (2015). Using Monte-Carlo simulation and analysis of system dynamics, we study the joint impacts of macroprudential and monetary policies. We find that the mix of macroprudential and monetary policies is a key determinant both of the probability of real-sector instability, and of the severity (e.g. in terms of GDP loss) of real-sector instability and that studying the combined effects of macroprudential and monetary policies leads to radically altered assessment of policy impacts, compared to analyses of the impacts of both policies in isolation.