When could Macroprudential and Monetary Policies be in Conflict?

This paper aims to provide a comprehensive analysis of the potential conflicts between macroprudential and monetary policies within DGSE model with financial frictions. The identification is conditional on different types shocks, policy instruments, objectives. We first find that are not systematic but fairly frequent, especially in case supply-side widespread shocks such as investment efficiency bank capital shocks. Second, countercyclical requirements generate many circumstances. By affecting interest rates, they both “get all cracks”, albeit their respective targets generally moving opposite directions. Nonetheless, could reduce its adverse side effects by responding strongly output gap. Third, loan-to-value caps, sector-specific cause fewer conflicts. Thus, can be more easily implemented without concerns about generating spillovers, whereas smooth coordination required state-contingent policy.