Many central banks have adopted explicit objectives for financial stability, raising the possibility of trade-offs between price and financial stability objectives. Based on structural vector autoregressions that incorporate both monetary and macroprudential policy shocks for four inflation targeting economies in Asia and the Pacific, we analyse the role of each policy shock in explaining deviations from the other policy’s objective, by applying historical decompositions. The macroprudential measures used in the study affect credit extended to the private sector. We find that there are periods when macroprudential policy shocks have contributed to pushing inflation away from the central bank’s inflation target and when monetary policy shocks have contributed to buoyant credit, suggesting that there have been short-term trade-offs between price and financial stability objectives. However, we also find periods when macroprudential policy shocks helped stabilise inflation and monetary policy shocks contributed to financial stability.

This paper investigates the effects and conduct of macroprudential policies in China compared to those of monetary policy. Two types of structural VAR models, one with recursive zero restrictions and the other with sign restrictions on impulse responses, are used with monthly data. The main results of this paper are as follows. First, macroprudential policy has substantial effects on financial variables such as credit and house prices and macro variables such as output and inflation rate, as monetary policy does. Second, contractionary macroprudential policy is taken to stabilize credit in response to credit shocks, but monetary policy is not.