Macroprudential Policy

How does monetary policy respond to the dynamics of the shadow banking sector?

“…Despite this, a number of challenges remain unsolved including (a) how regulatory policies may themselves fail to account for continuous changes in the financial system accruing to globalization, preferences, and technology shifts (Claessens, ; Reinhart & Sowerbutts, ); (b) whether responsibility for macroprudential policies should be pursued by specialized prudential regulators and supervisors or monetary authorities (Allen, ; Ingves, ; Kenç, ; Rotemberg, ); (c) how to coordinate and calibrate monetary policy and macroprudential policies (Turner, ); (d) the complacency about bond market liquidity “illusion,” the rigidity of bank liquidity rules and the virtual absence of macroprudential tools targeting the nonbank system (Turner, ). Summing up, there is neither consensus, nor a unified institutional supervision framework for the financial system (Barwell, ).…”

Benchmarking Macroprudential Policies: An Initial Assessment

“…In the past several years a considerable amount of research effort has been devoted to the topic of macroprudential policy. While the term 'macroprudential' apparently dates back to the 1970s (Barwell 2013), the Bank for International Settlements (BIS) championed the push for macroprudential regulation as of last decade (e.g., Borio and White 2004). One of the early supporters of the development of a macroprudential framework, Andrew Crockett, former General Manager of the BIS, put it in the following terms: "Strengthening the macro-prudential orientation of the regulatory and supervisory framework is important because of the costs and nature of financial instability.…”

“…The unexpected interconnections, vulnerabilities, and contagion that marked the crisis underscored the fundamental importance of developing comprehensive macroprudential policy regimes. Yet, more than seven years after the crisis the meaning of the term 'macroprudential regulation' remains "obscure" (Barwell 2013), its motivation is imperfectly understood (e.g., Claessens 2014), and its effectiveness is still much debated (e.g., Galati and Moesner 2014).…”

“…The economies covered by our analysis include a mix of advanced and emerging market economies. A complete list shown inTable 2a.3 Barwell (2013) is a comprehensive account of the origins, development, and theoretical aspects dealing with macroprudential policies, although it leans towards the UK perspective (see below). More general surveys that examine the motivation and deployment of macroprudential policies to date includeClaessens (2014) and Moessner (2011, 2014).…”