Informality, Frictions, and Macroprudential Policy

November 27, 2019

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Format: Chicago

Moez Ben Hassine, and Nooman Rebei. Informality, Frictions, and Macroprudential Policy, (USA: International Monetary Fund, 2019) accessed December 3, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We analyze the effects of macroprudential policies through the lens of an estimated dynamic stochastic general equilibrium (DSGE) model tailored to developing markets. In particular, we explicitly introduce informality in the labor and goods markets within a small open economy embedding financial frictions, nominal and real rigidities, labor search and matching, and an explicit banking sector. We use the estimated version of the model to run welfare analysis under optimized monetary and macroprudential rules. Results show that although informality reduces the efficiency of macroprudential policies following a convex fashion, combining the latter with an inflation targeting objective could be beneficial.

Subject: Banking, Consumption, Financial sector policy and analysis, Housing, Labor, Macroprudential policy, National accounts, Self-employment

Keywords: Adjustment cost, Consumption, Demand shock, Housing, Inflation rate, Inflation targeting policy, Interest rate, Interest rate rule, Macroprudential policy, Marginal utility, Monetary policy, Nominal exchange rate, Open economy, Physical capital, Production function, Self-employment, Welfare gain, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/255
Stock No:

WPIEA2019255
ISBN:

9781498320856
ISSN:

1018-5941

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