RESEARCH PAPER
Macroprudential and Monetary Policy Rules in a Model with Collateral Constraints
Piotr Żoch 1, 2  
 
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1
University of Chicago, United States
2
FAME | GRAPE, Poland
CORRESPONDING AUTHOR
Piotr Żoch   

University of Chicago, United States; FAME | GRAPE, Poland
Submission date: 2019-09-26
Final revision date: 2020-01-17
Acceptance date: 2020-04-16
Publication date: 2020-06-30
 
GNPJE 2020;302(2):43–69
 
KEYWORDS
JEL CLASSIFICATION CODES
ABSTRACT
We compare the welfare and macroeconomic effects of monetary policy and macroprudential policy, in particular one targeting the loan-to-value (LTV) ratio. We develop a dynamic stochastic general equilibrium (DSGE) model with collateral constraints and two types of agents. In this set-up, we study seven potential policy rules responding to credit growth and fluctuations in the prices of collateral. We show that monetary policy responding to deviations in collateral prices from their steady-state value results in the highest level of social welfare. It is also useful in stabilising output and inflation. A macroprudential policy using the LTV ratio as the instrument is dominated in terms of output and inflation stability by interest rate rules. If interest rate rules are not available, the LTV ratio can be used to improve welfare, but the gains are small.
 
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