The potential of macroprudual and monetary policy in the synchronization of financial, debt and business cycles: channels of transmission in risk and liquidity management

Шлапак, Алла Василівна (2023) The potential of macroprudual and monetary policy in the synchronization of financial, debt and business cycles: channels of transmission in risk and liquidity management Інвестиції: практика та досвід (10). pp. 5-13. ISSN 2306-6814

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Abstract

In the article, the purpose of which is to study the systemic interrelationships between the money market and the credit market, as well as to identify the potential for eliminating or strengthening their influence on the state of the macroeconomic and financial environment by means of monetary and credit and macroprudential policies, the essence and manifestations of monetary and credit fluctuations in macroeconomic processes, the role that they can play in the strengthening, spread and occurrence of shocks at various stages of the economic cycle is determined, and the essence of the financial cycle and the channels of its influence on asset prices, risk distribution and asset portfolios are analyzed. Manifestations of a typical boom-bust cycle have been identified and it has been established that during the boom phase of the financial cycle, soft financial restrictions and a decrease in risk aversion are self-reinforcing, creating the basis for rising asset prices. As a result, the risk premium falls, which encourages more active behavior in search of income, and increases both the demand and the supply of debt obligations of households and corporations. It has been established that financial cycles can be finalized by sudden financial crises: risk premiums increase rapidly; the debt burden is growing; the large-scale sale of financial assets and real estate leads to a sharp price correction. The identification of modern manifestations of destabilization in the banking sector of the USA and EU countries highlighted the fundamental differences in modern macroeconomic thinking — between theories that consider the financial system as insignificant or at least not central to understanding economic results, and theories that assign a central role to financial intermediation and banking in particular. Economic history plays a crucial role in this debate, because empirical experience allows not only to establish the necessary transmission channels within financial, credit and business cycles, which usually occur about once a decade, but also to investigate the practice of alleviating depressions and exiting financial crises using toolkit of monetary and fiscal and budgetary policies. It has been found that to the extent that soft monetary policy can increase inflation and nominal income growth, there may be a shift in the debt repayment burden for borrowers. The challenge for central banks, then, is to determine what level of risk is desirable and when exactly financial risks become significant enough to potentially threaten macroeconomic stability. The tools of macroprudential policy, which should be used to ensure price and economic stability and manage business and financial cycles, are considered, provided that they sometimes contradict each other. The ability of macroprudential policy to act as a means of risk management has been proven. that monetary and macroprudential policies can interact with each other, reinforcing each other when the cycles are synchronized. However, when business and financial cycles are not synchronized, these policies can act in different directions and counteract each other's effects: monetary policy can contribute to the accumulation of risks and, therefore, shape the demand for the appropriate course of macroprudential policy. It is promising to include in the consideration of macroprudential and monetary policies, as well as fiscal policies, which are aimed, among other things, at the correction of the business cycle, which allows us to identify common features in them, and any conflict in their implementation, as a rule, arises due to political limitation. It has been established that the flexibility of using monetary policy instruments is that there are a number of channels through which it can influence behavior related to risk perception. It found that a scenario in which economic activity is in a contraction phase and the financial cycle is in an expansion phase implies increasing pressure on the central bank (CB) to ease its policy, but at a time when recessionary risks are becoming unacceptable high, a change in the rate of the Central Bank may be detrimental to macroeconomic stability. The choice the CB makes in this situation will depend on the importance it places on achieving its goals in the long or short term. Channels of interdependence between the money market, credit market, real estate market and financial cycles are summarized.

Item Type:	Article
Uncontrolled Keywords:	business cycle; synchronization of cycles; financial cycle; debt cycle; money market; credit market; real estate market; banking sector; macroprudential policy; monetary policy; liquidity; asset prices
Subjects:	Це архівна тематика Київського університету імені Бориса Грінченка > Статті у наукометричних базах > Index Copernicus Це архівна тематика Київського університету імені Бориса Грінченка > Статті у журналах > Фахові (входять до переліку фахових, затверджений МОН)
Divisions:	Це архівні підрозділи Київського університету імені Бориса Грінченка > Факультет економіки та управління > Кафедра міжнародної економіки
Depositing User:	Доцент Алла Василівна Шлапак
Date Deposited:	25 Jul 2023 08:07
Last Modified:	25 Jul 2023 08:07
URI:	https://elibrary.kubg.edu.ua/id/eprint/45733

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