Evaluating the Net Benefits of Macroprudential Policy: A Cookbook

Abstract

The paper proposes a simple, new, analytical framework for assessing the cost and benefits of macroprudential policies. It proposes a measure of net benefits in terms of parameters that can be estimated: the probability of crisis, the loss in output given crisis, policy effectiveness in bringing down both the probability and damage during crisis, and the output-cost of a policy decision. It discusses three types of policy leakages and identifies instruments that could best minimize the leakages. Some rules of thumb for policymakers are provided.

Central Bank Policies and Income and Wealth Inequality: A Survey

“…Arregui et al . () conjecture that it is due to unintended side effects of macroprudential measures through “leakages.” Stricter capital regulations and lending requirements encourage rent seeking, by migration of financial activities to shadow banking, greater reliance on wholesale funding to cover higher costs of capital rules, cross‐border lending, and regulatory arbitrage. These “leakages” create economic rents for mainly high‐income agents (Frost and van Stralen, ); they would see their incomes rise disproportionately more than low‐ and middle‐income agents, who are financially constrained and have limited access to financial markets.…”

“…It remains unclear through which mechanism macroprudential policy may generate distributional effects. Arregui et al (2013) conjecture that it is due to unintended side effects of macroprudential measures through "leakages." Stricter capital regulations and lending requirements encourage rent seeking, by migration of financial activities to shadow banking, greater reliance on wholesale funding to cover higher costs of capital rules, cross-border lending, and regulatory arbitrage.…”

Effective Macroprudential Policy: Cross‐Sector Substitution from Price and Quantity Measures

“…Our focus is on MaPs that address the time dimension of systemic risk, that is, the endogenous build-up of systemic risk over the financial cycle (Borio 2014). 4 Recently, the active use of instruments has spawned a growing empirical literature on the effectiveness of MaPs, both in individual country or regional cases and in global panels (Arregui et al, 2013). The most comprehensive approach is that of Cerutti, Claessens, and Laeven (2017), who use an IMF survey to document MaPs for 119 countries over the 2000-13 period.…”

Effective Macroprudential Policy: Cross-Sector Substitution from Price and Quantity Measures

“…The active use of instruments has spawned a growing empirical literature on the effectiveness of macroprudential policies, in individual country, regional and global settings (Arregui et al, 2013). The most comprehensive study is that of Cerutti et al (2015), who use an IMF survey to document macroprudential policies in 119 countries over the 2000-13 period.…”