02136cas a2200241 a 4500 AALejournalIMF006152 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451874037 1018-5941 BD-DhAAL BD-DhAAL N'Diaye, Papa. Countercyclical Macro Prudential Policies in a Supporting Role to Monetary Policy / Papa N'Diaye. Washington, D.C. : International Monetary Fund, 2009. 1 online resource (22 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper explores how prudential regulations can support monetary policy in reducing output fluctuations while maintaining financial stability. It uses a new framework that blends a standard model for monetary policy analysis with a contingent claims model of financial sector vulnerabilities. The results suggest that binding countercyclical prudential regulations can help reduce output fluctuations and lessen the risk of financial instability. More specifically, countercyclical rules such as countercyclical capital adequacy rules, can allow monetary authorities to achieve the same output and inflation objectives but with smaller adjustments in interest rates. The countercyclical rules can help stem swings in asset prices, lean against a financial accelerator process, and thereby help to lower risks of macroeconomic and financial instability. In economies with fixed exchange rates, where countercyclical monetary policy is not possible, prudential regulations can provide a useful mechanism for mitigating a run-up in asset prices and for promoting output stability. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2009/257 Full text available on IMF http://elibrary.imf.org/view/journals/001/2009/257/001.2009.issue-257-en.xml IMF e-Library