After the start of the financial crisis of 2008, the interest in systemic risk mitigation increased significantly. The majority of central banks made an attempt to quantify the effects of the implementation of macro-prudential tools in developed as well as developing countries. However, due to a relatively short time of observation, the empirical studies on the effects of macro-prudential policies on the economy and the financial system are rather limited. Moreover, the empirical analyses seem to address the problem of interactions of macro-prudential and macroeconomic policies quite superficially. Nonetheless, the theory of macro-prudential policy may provide a first important insight about the interaction of macro-prudential, fiscal and monetary policies in developed and developing countries with different degrees of economic openness.
Objectives
The main objectives of this article are to present the theory of macro-prudential policy and study the potential effects of interactions of policies. The article attempts to answer the questions: under which conditions can the macro-prudential tool be perceived as a de facto Pigovian tax; what consequences may the introduction of a specific macro-prudential policy have for the effectiveness of fiscal policy; what fiscal and monetary policy actions can oppose the beneficiary effects of macro-prudential tools; and what the redistributive effect of taxes and macro-prudential tools may be.
Methods
In order to answer these questions, we carry out counterfactual simulations within dynamic stochastic general equilibrium modeling (DSGE) and agent-based modeling (ABM) frameworks. We present three different types of models: DSGE with homogenous agents, DSGE with heterogeneous agents and ABM with fully heterogeneous agents. The simulation results are presented separately for a developed economy and for an economy at lower lever of development and economic openness.
Expected Results
The article shows that the optimality of macro-prudential policies should be studied taking into account the degree of development and openness of the economy as well as the interactions of policies. In addition, the article emphasizes the potential conflict of objectives of fiscal and macro-prudential policies, that is the desire to obtain higher public revenues from banking taxation and to mitigate the systemic risk (to ensure the financial stability).