Monetary Policy and Macroprudential Regulation with Financial Frictions

This book comprehensively studies the critical role that financial frictions, and credit market imperfections in particular, play in macroeconomic models, and how they affect the effectiveness of monetary and macroprudential policies. To that effect, the book offers numerous insights into the specification and use of these models, ranging from static to dynamic stochastic general equilibrium (DSGE) and endogenous growth models. Through a blend of theoretical insights and practical applications, readers will also learn to analyze how monetary and macroprudential policies interact, and how they can be used jointly to promote macro-financial stability and contribute to social welfare.

Updated with the latest developments, this edition provides fresh perspectives on a range of topics, including international macroprudential policy coordination. Addressing a broad audience of researchers, professional macroeconomists, graduate and advanced undergraduate students, this book equips readers with the technical foundations and policy insights necessary for a deep understanding of the role of monetary policy and financial regulation.

This is a treatise/textbook that the profession badly needs. It focuses on financial frictions and burning issues of the day. It will be especially valuable for graduate students who are keen on making their marks on this challenging field.

Guillermo A. Calvo, Professor of International and Public Affairs, Columbia University; former Chief Economist at the Inter-American Development Bank; and author of Macroeconomics in Times of Liquidity Crises

Pierre-Richard Agénor has produced the most complete and comprehensive treatment of the effects of macroprudential policies in a general-equilibrium context of which I am aware. The beauty of this book is that it explores that role in a sequence of models ranging from simple closed-economy reduced-form versions to state-of-the-art open-economy DSGEs with financial frictions, each lucidly developed and intuitively explained. This innovative approach makes the general-equilibrium effects of a variety of macroprudential policy instruments transparent and easy to understand. Agénor’s book is likely to become a standard reference in the literature on macro-financial linkages and regulatory policies intended to avoid aggregate financial fragility. It belongs on the bookshelf of any student or researcher concerned with these topics.

Peter J. Montiel, Professor of Economics, Williams College