How Complementary Are Prudential Regulation and Monetary Policy?

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 'substitu...

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Bibliographic Details
Main Author:	Canuto, Otaviano
Format:	Brief
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCUMULATION OF RESERVES AGGREGATE DEMAND ARBITRAGE ASSET PRICE ASSET PRICE BOOMS ASSET PRICE BUBBLES ASSET PRICES ASSETS BALANCE SHEET BALANCE SHEETS BANK BALANCE SHEETS BANK CAPITAL BANK FOR INTERNATIONAL SETTLEMENTS BANK GOVERNORS BANK LENDING BANK LIQUIDITY BANK PANICS BANK POLICY BANKING CRISES BANKING CRISIS BANKING SUPERVISION BANKING SYSTEM BORROWER BORROWING BORROWING COSTS BUFFER BUFFERS BUSINESS CYCLES CAPITAL ADEQUACY CAPITAL INFLOWS CAPITAL REGULATION CAPITAL STANDARDS CAPITALIZATION CENTRAL BANK CENTRAL BANKING CENTRAL BANKS COMPLEX SECURITIES CONSUMER PRICE INDEX CONSUMER PROTECTION CONTAGION CORNER SOLUTIONS CREDIBILITY CREDIT BOOMS CREDIT EXPANSION CREDIT GROWTH CREDIT MARKET CREDIT MARKETS CURRENCY MISMATCHES CURRENCY RISK DEBT DEMAND GROWTH DEPOSIT DEPOSITORS DERIVATIVES DERIVATIVES TRANSACTIONS DISTORTIONS DOMESTIC CREDIT DOMESTIC CREDIT GROWTH DUE DILIGENCE ECONOMIC POLICY EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EMPLOYMENT EXCESS LIQUIDITY EXCHANGE RATE EXPOSURES EXTERNAL FUNDING EXTERNALITIES FEDERAL RESERVE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL FRAGILITY FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL RISKS FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STABILITY OBJECTIVES FINANCIAL STABILITY POLICY FINANCIAL SYSTEM FINANCIAL VARIABLE FOREIGN CAPITAL FOREIGN CURRENCY FOREIGN CURRENCY LENDING GENERAL EQUILIBRIUM GLOBAL BANKING GLOBAL ECONOMY GLOBAL FINANCIAL SYSTEM GLOBAL LIQUIDITY HIDDEN RISK HOUSEHOLD DEBT HOUSING HOUSING LOANS INCENTIVE STRUCTURE INCOME INDIVIDUAL FIRMS INFLATION INFLATION OBJECTIVE INFLATION RATES INFLATION TARGETING INFLATION TARGETING FRAMEWORK INFLATIONARY PRESSURE INFLATIONARY PRESSURES INSTRUMENT INTEREST RATE INTEREST RATE POLICY INTEREST RATES INTERNATIONAL BANKING INTERNATIONAL MARKETS INTERNATIONAL SETTLEMENTS INTERNATIONAL STANDARDS INVESTMENT PURPOSES LENDING LIMITS LEVERAGE LEVIES LIABILITY LIQUIDITY REQUIREMENTS LIQUIDITY RISK LOAN LOCAL MARKET MACROECONOMIC FLUCTUATIONS MACROECONOMIC INSTABILITY MACROECONOMIC MODELS MACROECONOMIC POLICIES MACROECONOMIC STABILITY MACROECONOMIC VARIABLES MACROECONOMICS MARKET PARTICIPANTS MATURITY MATURITY STRUCTURE MINIMUM CAPITAL REQUIREMENT MINIMUM CAPITAL REQUIREMENTS MONETARY AUTHORITIES MONETARY FUND MONETARY POLICY MONETARY POLICY FRAMEWORK MORAL HAZARD MORTGAGE MORTGAGES OUTPUT OUTPUT GAPS POLITICAL ECONOMY PORTFOLIO PORTFOLIO FLOWS PORTFOLIOS POVERTY REDUCTION PRICE DISTORTIONS PRICE FLUCTUATIONS PRICE HIKES PROBABILITY OF DEFAULT PRODUCTIVITY PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PUSH FACTORS RAPID CREDIT EXPANSION RAPID GROWTH RATE MOVEMENTS REAL ESTATE REAL ESTATE AS COLLATERAL REGULATORS REGULATORY REFORM REGULATORY REFORMS REGULATORY STANDARDS RELATIVELY LOW INFLATION REMUNERATION REPAYMENT RESERVE RESERVE ACCUMULATION RESERVE REQUIREMENTS RESERVES RISK ASSESSMENTS RISK MANAGEMENT RISK PREMIA RISK TAKING RISK WEIGHTS SALES OF ASSETS SECURITIZATION SHORT-TERM DEPOSITS STABLE GROWTH STABLE INFLATION STOCK MARKET STRONG DEMAND SURCHARGES SYSTEMIC RISK SYSTEMIC RISKS TERMS OF CAPITAL TIER 1 CAPITAL TRANSMISSION MECHANISM UNCERTAINTY VOLATILITY WEIGHTS WORLD ECONOMY
Online Access:	http://documents.worldbank.org/curated/en/2011/06/14381200/complementary-prudential-regulation-monetary-policy http://hdl.handle.net/10986/10089

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Summary:	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 note, however, argues in favor of complementarily rather than substitution in the use of monetary and macro-prudential policies: the combined (articulate) use of both policies tends to be more effective than a standalone implementation of either.

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