Macroprudential Policy: A Silver Bullet or Refighting the Last War?

Lopez, Claude and Markwardt, Donald and Savard, Keith (2015): Macroprudential Policy: A Silver Bullet or Refighting the Last War?

Abstract

As many central banks contemplate the normalization of monetary policy, their focus is turning to the promise of macroprudential policy as a tool to manage possible future systemic risk in financial markets. Janet Yellen and Mario Draghi, among others, are pinning much of their hopes for managing financial stability in the context of Basel III on macroprudentialism. Despite central banks’ clear intention that this policy will play a significant role in developed economies, few policymakers or financial players know what macroprudential policy is, much less how to assess its efficacy or necessity. Our report aims to clarify the concept of macroprudential policy for a broader audience, cultivating a better understanding of these tools and their implications for broader monetary policy going forward. The report also advocates the use of more refined indicators for financial cycles as benchmarks for policy discussions on macroprudential policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: macroprudential policy, non-core liabilities, Basel III, financial regulations, countercyclical, financial cycle
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

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