An Overview of Macroprudential Policy Tools

Posted: 11 Dec 2015

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

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Date Written: December 2015

Abstract

Macroprudential policies — caps on loan to value ratios, limits on credit growth and other balance-sheet restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies — have become part of the policy paradigm in emerging markets and developed countries alike. But knowledge of these tools is still limited. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They may also interact with various other policies, such as monetary and microprudential, raising coordination issues. Countries, especially emerging markets, have used these tools, and analyses suggest that some of those tools reduce procyclicality and crisis risks. Yet, much remains to be studied, including the costs of such tools, as they may adversely affect resource allocations; how best to adapt these tools to a country's circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting these tools.

Suggested Citation

Claessens, Stijn, An Overview of Macroprudential Policy Tools (December 2015). Annual Review of Financial Economics, Vol. 7, pp. 397-422, 2015. Available at SSRN: https://ssrn.com/abstract=2702338 or http://dx.doi.org/10.1146/annurev-financial-111914-041807

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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