The combined effects of monetary and macroprudential policies

The headwinds of the financial crisis have threatened the attainment of macroeconomic stability. As result, policymakers were confronted with finding the right policy mix that will ensure price stability, financial stability, and long-run growth. This paper contributes to the discussion by investigating the impact of simultaneous usage of monetary and macro-prudential policies in Central and Eastern Europe using a dynamic panel framework. Findings show that while an expansionary innovation to macro-prudential policy increases the loan-to-value ratio, and accelerates the credit-to-GDP gap, a contractionary shock to monetary policy hiked the policy interest rate, which depresses price inflation and economic activity. In terms of pass-through effects, property prices fell amid macro-prudential expansion and monetary tightening (no wealth effect was found).