Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges and a Way Forward
37 Pages Posted: 19 Oct 2011
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Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges and a Way Forward
Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward
Date Written: September 1, 2011
Abstract
The recent financial crisis has triggered a major rethink of analytical approaches and policy towards financial stability. The crisis has encouraged a sharper focus on systemic risk, the inclusion of a financial sector in macroeconomic models, a shift from a microprudential to a macroprudential orientation in regulation and supervision, and questions about whether price stability is a sufficient criterion to guide monetary policy. In the process, it has led to a rediscovery of the macroeconomic roots of financial instability. This paper argues that this development is welcome but has not gone far enough. To substantiate this conclusion, the paper documents this analytical and policy journey before suggesting a way forward.
Keywords: financial (in)stability, systemic risk, capital, liquidity, monetary policy, monetary economy
JEL Classification: E30, E44, E50, G10, G20, G28
Suggested Citation: Suggested Citation
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