Tuesday, June 30, 2015
Since the Great Recession, there has been a lot of research done on macroprudential policy. Here is the new research of the past month:
Macruprudential policy in country-specific cases: A new IMF paper reviews the use of macroprudential policy in Hong Kong SAR, the Netherlands, New Zealand, Singapore, and Sweden. The analysis shows that each country reviewed adopted an institutional framework for macroprudential policy suited to their own circumstances. The evidence reviewed confirms that “one size does not fit all,” and that it is possible to conduct macroprudential policy with a heterogenous set of institutional frameworks. In all cases, most of the macroprudential tools used were directed at containing risks arising from a booming housing market (for e.g., LTV and DSTI ratio limits). This study complements an earlier note issued by the IMF, which provides a framework for staff’s advice on macroprudential policy in its bilateral surveillance.
Macroprudential policy in Asia and Pacific: A new working paper from the Bank for International Settlements (BIS) finds that macroprudential policies are more successful when they complement monetary policy by reinforcing monetary tightening, than when they act in opposite directions (on a related note, see Box IV.A of the latest BIS annual report).
Macroprudential policy in Europe: A new paper from the European Central Bank (ECB) says that policies need to be granular enough to deal with the fact that property credit cycles can exhibit strong regional features. There is increasing theoretical support and empirical evidence that borrower-based regulatory policies can be effective, diminishing the credibility of claims that there is not enough experience to practically apply such instruments. In the case of the euro area there may be room in a significant number of countries for putting these instruments more clearly in the hands of newly created macroprudential policy authorities and for creating coordination mechanisms for national LTV or DTI policies at the area-wide level to address the cross-border spillovers potentially caused by these policies.
Experience with macroprudential policy: Research by Kenneth N. Kuttner (Williams College) and Ilhyock Shim (BIS) concurs with the work of others who say that experience with macro-prudential policy measures in various countries is not extensive and may, in any case, have only limited applicability elsewhere because of differences in economic conditions, the relative importance of capital market and traditional bank intermediation, and many other factors. Therefore, it would be unwise to rely solely on macroprodudential policies for taming financial booms and busts.
Riksbank macroprudential conference: The Riksbank has started to hold an annual conference for frontier thinking on macroprudential policies. The keynote speaker at this year’s conference was Raghuram Rajan, Governor of the Reserve Bank of India. It also included presentations from: Jeremy Stein of Harvard University, Atif Mian of Princeton University, Gianni De Nicolò of the IMF and others.
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