Coordination of Monetary Policy and Macro Prudential Policy: New Evidence from OIC Countries

Interaction of macro prudential policy and monetary policy depends on the relation of objectives. Central bank authorities focus on price stability but may not concern with financial stability. Hence, the variables that influenced on financial markets are various and are determined to on risk management perspectives. This paper survey the interaction of monetary policy and macro prudential policy by focusing capital requirement. The aim of this paper are increasing convergence between polices by transitions mechanism. This paper use the dynamic unbalanced panel system generalized method of moment (SYS-GMM) for estimating the interaction of monetary and macro prudential policies. This system considers preference of central bank as proxy of goal’s monetary policy. The data includes OIC countries banking system over the period 2003-2017.The sample of 52 OIC countries (Organization of Islamic Cooperation). According to the results, the coefficient of this cross-product is significantly positive that indicating that conservatism of central bank and macro prudential policy instrument, capital adequacy, increase the effect of macro prudential policy on banking lending. The results show that the conservatism of central bank is an important indicator for implementing macro prudential supervision in OIC countries.