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The welfare cost of macro-prudential policy in a two-country DSGE model

This paper builds a two-country DSGE model with financial frictions and investigates the welfare cost of macro-prudential policy and its impact on financial stability. The two countries in question are the U.S. and South Africa. The results show that macro-prudential policy results in a welfare trade-off between patient and impatient households. The impact of macro-prudential policy tends to bene fit patient households more than impatient households. By decreasing the volatility of loans uptake and output growth, macro-prudential policy could helps to achieve fi nancial stability in South Africa.
Working paper 682
1 May 2017
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