Discussion of “Monetary and Macroprudential Policy in an Estimated DSGE Model of the

The recent crisis has highlighted the need for a “macroprudential policy” ensuring financial stability. One of the key aspects of this forthcoming macroprudential policy is the setting of bank capital requirements conditionally on the state of the economy—what the Basel Committee on Banking Supervision (2010) calls the “countercyclical capital buffer.” This raises the issue of the interactions between monetary and macroprudential policies (see, e.g., International Monetary Fund 2013). On this issue, the euro area has some specificities: it has a single monetary authority (the European Central Bank), a common macroprudential authority (the European Systemic Risk Board), and national macroprudential authorities. How should all these authorities conduct their respective statecontingent policies? The paper by Quint and Rabanal in this volume (Quint and Rabanal 2014, henceforth QR) takes a welcome first step in addressing this issue. It studies the jointly optimal monetary and macroprudential policies in a dynamic stochastic general equilibrium (DSGE) model estimated on euro-area data. This model has two countries, a single monetary authority, and national macroprudential authorities that cooperate with each other. A number of interesting quantitative results are obtained: in particular, the welfare gain from introducing macroprudential policies is found to be small, and optimal