Most of the time monetary policy and macro-prudential policy should be able to operate largely independently, or have complementary effects on each other that are relatively easy to manage (Table 1). Relative independence will be possible when one or both of the policies are in ‘neutral’, and therefore imparting little influence on the other’s objective.
In contrast to the household sector, the business sector has been a relative bright spot in the current recovery. Manufacturing production has increased 15 percent since its trough, and capital spending by businesses has expanded briskly over the past two years, driven in part by the need to replace aging equipment and software.