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Monetary versus macroprudential policies:causal impacts of interest rates andcredit controls in the era of the UKradcliffe report

Aikman, David and Bush, Oliver and Taylor, Alan M. (2016) Monetary versus macroprudential policies:causal impacts of interest rates andcredit controls in the era of the UKradcliffe report. Economic History Working Papers, 246/2016. London School of Economics and Political Science, Economic History Department, London, UK.

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Identification Number: 246/2016

Abstract

We have entered a world of conjoined monetary and macroprudential policies. But can they function smoothly in tandem, and with what effects? Since this policy cocktail has not been seen for decades, the empirical evidence is almost non-existent. We can only fix this shortcoming in a historical laboratory. The Radcliffe Report (1959), notoriously skeptical about the efficacy of monetary policy, embodied views which led the UK to a three-decade experiment of using credit controls alongside conventional changes in the central bank interest rate. These non-price tools are similar to policies now being considered or used by macroprudential policymakers. We describe these tools, document how they were used by the authorities, and craft a new, largely hand-collected dataset to help estimate their effects. We develop a novel identification strategy, which we term Factor-Augmented Local Projection (FALP), to investigate the subtly different impacts of both monetary and macroprudential policies. Monetary policy acted on output and inflation broadly in line with consensus views today, but credit controls had markedly different effects and acted primarily to modulate bank lending

Item Type: Monograph (Working Paper)
Official URL: http://www.lse.ac.uk/economicHistory/home.aspx
Additional Information: © 2016 The Authors
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
Sets: Departments > Economic History
Collections > Economists Online
Date Deposited: 29 Jun 2016 14:39
Last Modified: 30 Jun 2016 13:38
URI: http://eprints.lse.ac.uk/id/eprint/67035

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