The Conduct of Macroprudential Regulation and Monetary Policy on Financial Stability
The Imperative for Coordination
• Author(s): Salma Gallas & Houssam Bouzgarrou
• Published: September 2025
• Pages in paper: 31
Abstract
The study investigates the impact of macroprudential and monetary policy shocks on financial and macroeconomic conditions, emphasising their complementary roles in achieving financial stability across 11 OECD economies from 2000 Q1 to 2018 Q4. Using a vector autoregressive (VAR) methodology within a dynamic data panel model, the analysis reveals that contractionary monetary policy shocks reduce financial variables but increase price levels, a phenomenon termed the “Price Puzzle”. Tightening macroprudential policy is found to negatively affect credit growth and economic output, highlighting its role in moderating financial excesses but potentially dampening economic activity. Effective coordination between macroprudential and monetary policies is essential to minimise political conflicts and enhance financial system stability at both macroeconomic and financial levels.
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