Исследовательский Центр ИПМ
Kasrtyčnicki Ekanamičny Forum

WP/14/01 Macroeconomic Model for Analyzing the Effectiveness of Macroprudential and Monetary Policy

The global financial and economic crisis led to the need for a reconsideration of the established principles for conducting economic policy and regulating the financial sector. The crisis has shown that the combination of flexible inflation targeting and microprudential regulation of the banking sector can be not effective enough in countering the increase in systemic risk. Combating the systemic risk is what the macroprudential instruments are designed for. First, such instruments are aimed at reducing the aggregate systemic risk over time (countercyclical instruments). Second, macroprudential instruments can decrease the probability that the problems of individual institutions will spread to the whole banking/financial system. As for monetary policy, one possible path for improvement can be the addition of asset price dynamics or credit growth to the central bank’s objectives. In this paper, the author builds a new Keynesian DSGE model with banking sector that can be used to analyze the effectiveness of macroprudential and monetary policy alternatives. The large part of the model parameters were estimated using data on the Belarusian economy.