City Research Online

An Analysis of Monetary and Macroprudential Policies in a DSGE Model with Reserve Requirements and Mortgage Lending

Ben-Gad, M. ORCID: 0000-0001-8641-4199, Pearlman, J. ORCID: 0000-0001-6301-3966 & Sabuga, I. (2022). An Analysis of Monetary and Macroprudential Policies in a DSGE Model with Reserve Requirements and Mortgage Lending. Economic Modelling,

Abstract

We propose a general equilibrium framework that highlights the interaction of reserve requirements and a conventional monetary policy in a model that combines endogenous housing loan defaults and financial intermediation frictions due to the costs of enforcing contracts. We use the model to examine how the interaction of these policies affect (i) the credit and business cycle; (ii) the distribution of welfare between savers and borrowers; (iii) the overall welfare objectives when monetary and macroprudential policies are optimised together or individually. We find that models with an optimised reserve ratio rule are effective in reducing the sudden boom and bust of credit and the business cycle. We also find that there are distributive implications of the introduction of reserve ratio where borrowers gain at the expense of savers.

Publication Type: Article
Additional Information: © 2022. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Reserve requirements, endogenous loan defaults, welfare
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Departments: School of Policy & Global Affairs > Economics
[img] Text - Accepted Version
This document is not freely accessible due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

To request a copy, please use the button below.

Request a copy

Export

Downloads

Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login