Dichotomy between macroprudential policy and monetary policy on credit and inflation

•I lay out a simple New Keynesian model with credit between households.•I analyze impacts of monetary and macroprudential policy on credit and inflation.•I discover a dichotomy between two policies regarding their effects.•This dichotomy arises because each policy affects savers and borrowers differently.

This paper compares macroprudential policy and monetary policy using a simple New Keynesian model with credit. Macroprudential policy is effective in stabilizing credit with limited impact on inflation. Monetary policy stabilizes inflation, but is 'too blunt' for credit stabilization.