The Effectiveness Of Macroprudential Policy

The 2008 financial crisis made the economists and policy authorities realized that we cannot only use microprudential policy and monetary policy to stable the financial system.The institutions of policymakers began to focus on financial regulatory reform subject to macroprudential regulation,and there is consensus of the world that the regulation rule will shift from microprudential to macroprudential policy since the subprime crisis.China also attaches great importance on the macroprudential policy,and already have started to build the macroprudential policy system.The construction of macroprudential policy is on the way.The people's bank of China point out that our country need to build macroprudential regulation system steply,and integrate this concept into macroprudential control policy in the 2009 Chinese monetary policy report,then comes up with new concepts in 2015 and announced that upgraded the adjustment of dynamic difference reserve and cooperative loan management mechanism to new Macro Prudential Assessment.Next China will improve the macroprudential management framework,take use of macroprudential policy for counter-cyclical regulation,and prevent systemic risk effectively.This paper main to study the effectiveness of macroprudential policy,and help to realize the transformation of structural adjustment of china and reduce the leverage,capacity and inventory smoothly,at the same time reduce the risk of China's financial market volatility and the risk of infection between financial institutions.This paper classify the macroprudential regulation instruments to three types: capital(such as capital requirement ratio),leverage(such as LTV ratio)and liquidity(such as reserve requirement).At present,the most popular tools are capital requirement ratio,LTV ratio and reserve requirement.However,reserve requirement can be used as monetary policy or as the macroprudential policy.Because there are already many studies on the effectiveness and transmission mechanism of reserve requirement,in order to eliminate the interference from monetary policy,this paper selects the capital requirement ratio and LTV ratio as the representatives of capital and leverage.This paper based on DSGE model and compared the two model which one introduced macroprudential policy instruments and another one did not to research the effectiveness of macroprudential policy for financial stability.Then use structural parameters calibration and numerical simulation,study the differences of fluctuation of macroeconomic variables under the poductivity shock,the financial riskiness shock,housing preference shock and expansionary monetary shock.The conclusion is that LTV ratio is not better than capital requirement ratio,because the LTV ratio only limited family and commercial credit.However,the combination of moderate LTV rate and capital requirement ratio can effectively deal with the impact of real estate demand,and when mixed capital requirement ratio and LTV ratio,it can reduce the fluctuation of inflation and output under many kinds of shocks.Besides,when the economy is facing severe inflation,the effectiveness of macroprudential instruments to reduce the volatility of inflation and output is almost zero.Therefore,on the one hand,policymakers can mix the capital requirement ratio and LTV ratio.On the other hand,policymakers also need consider the best collocation of macroprudential policy and monetary policy.