Björn Richter, Moritz Schularick, and Ilhyock Shim 21 September 2018
Central banks have increasingly relied on macroprudential measures to manage the financial cycle, but their effects on the core objectives of monetary policy to stabilise output and inflation are largely unknown. This column shows that the output costs of changes in maximum loan-to-value ratios are rather small, especially in advanced economies. At the same time, such policies successfully reduce household and mortgage credit growth. The results suggest that central banks could be in a position to use macroprudential instruments to manage financial booms without interfering with the core objectives of monetary policy in a major way.