The Coordination Between Macro-Prudential Supervision and Monetary Policy — From the Perspective of Financial Stability

Abstract

The onset of the 2008 economic crisis forced central banks to acknowledge that the monetary policy and micro prudential policy-based financial regulatory framework is insufficient to avert systemic risks. Compared with the low efficiency of micro prudential supervision in preventing and controlling financial systemic risks and the weakness of a single monetary policy tool in controlling financial systemic risks, the current theorists agree that monetary policy and macro prudential supervision policies are effective in coordinating and resisting financial risks. The link with both macro prudential regulation and monetary policy, as well as how to collaborate and coordinate the two policies, are thus major issues that we must address. Based on this background, this paper systematically combs and analyzes the necessity of coordination between monetary policy and macro prudential policy and the practical experience of relevant research on coordination mode through theoretical research on macro prudential regulation and reference of relevant policies at home and abroad. This paper uses the literature research method and comparative analysis method to analyze the macro prudential policy and monetary policy in depth. The theoretical basis of macro prudential regulation and monetary policy is formed by classifying, summarizing and sorting out the relevant researches on macro prudential regulation and monetary policy made by scholars from various countries. The implementation of macro prudential policies in developed economies like the United States and the United Kingdom, as well as their monetary policy coordination models, are compared and introduced in this dissertation. It also examines the traits and practical application of macro prudential and monetary policy cooperation in various nations. Based on the systematic risk theory, micro prudential supervision, macro prudential supervision theory and monetary policy, combined with the current situation of financial regulatory structures in various countries, using the literature research method and comparative analysis, this paper mainly draws the following conclusions: The financial system can only continue to run smoothly under a combined application of macro and micro prudential regulation; Systemic hazards can be efficiently prevented and mitigated by macro prudential oversight methods; Traditional monetary policy is unable to preserve both financial system stability and monetary stability; According to international experience, the central bank’s coordination of monetary policy and macro prudential policy can better play the complementary effects of the two programs.