Macroprudential Policy: The Need for a Coherent Policy Framework
Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)
De Nederlandsche Bank; VU University Amsterdam
July 1, 2011
Duisenburg School of Finance Policy Paper No. 13
The recent literature on macroprudential policy contains several suggestions for possible instruments. This paper puts forward and implements a method for arriving at a coherent policy framework. It starts by defining the role of macroprudential policy in the overall policy framework for the monetary and financial system. It then specifies the objective, intermediate targets (pillars), instruments, decision-making, accountability, and the legal base. We introduce a two pillar strategy. The basic presumption is that each instrument should be related to its intermediate target (pillar). This allows us to select a limited set of core instruments aimed at stabilising financial imbalances (pillar 1) and addressing externalities that arise from interconnections in the financial system (pillar 2).
Number of Pages in PDF File: 21
Keywords: Macroprudential policy, monetary policy, financial stability, financial supervision, policy frameworks
JEL Classification: E44, E58, E61, G28
Date posted: July 3, 2011
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