Monetary or macroprudential policy?

Our main result shows that, when macroprudential policy is imperfect, small doses of prudential monetary policy (PMP) can provide financial stability benefits that are equivalent to tightening leverage limits. PMP reduces asset prices during the boom, which softens the asset price crash when the economy transitions into a recession. This mitigates the recession  because higher asset prices support leveraged, high-valuation investors’balance sheets.

[T]he paper finds that there are minimal gains from monetary and macroprudential policy being set by a single policymaker compared with two distinct policymakers, one with a monetary policy objective and the other with a macroprudential policy objective. Second, the paper shows that if monetary policy becomes constrained by the effective (zero) lower bound to interest rates, the trade-off faced by policy makers is worse because the [countercyclical capital buffer] CCyB must balance both objectives.