Coordinated policies crucial for real and financial stability, study finds.
The study looked at how monetary policy and rules for banks should work together to keep the economy stable. By using a model on US data, they found that when the rules for banks focus on keeping the economy growing steadily, working together with monetary policy can lead to better outcomes. But if the rules for banks mainly focus on controlling how much money is lent, working together with monetary policy might not be as helpful. The study also showed that having rules in place for banks during a financial crisis can help prevent a big drop in lending, like what happened during the Great Recession.