Externalities and Macroprudential Policy

16 Pages Posted: 29 Nov 2017

See all articles by Gianni De Nicolo

Gianni De Nicolo

Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)

Giovanni Favara

Federal Reserve Board

Lev Ratnovski

International Monetary Fund; European Central Bank, Financial Research Division

Multiple version iconThere are 2 versions of this paper

Date Written: March 27, 2014

Abstract

As for any form of government intervention, macroprudential policy should be justified by market failures. This paper discusses three key externalities across financial institutions and from financial institutions to the real economy that rationalize the need for macroprudential policy: externalities related to strategic complementarities, fire sales and interconnectedness. We link each externality to recently proposed macroprudential policy tools, and argue that although various tools can correct the same externality, these tools are best seen as complements rather than substitutes.

Suggested Citation

De Nicolo, Gianni and Favara, Giovanni and Ratnovski, Lev, Externalities and Macroprudential Policy (March 27, 2014). Journal of Financial Perspectives, Vol. 2, No. 1, 2014, Available at SSRN: https://ssrn.com/abstract=3078739

Gianni De Nicolo (Contact Author)

Johns Hopkins University - Carey Business School ( email )

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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Giovanni Favara

Federal Reserve Board ( email )

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Washington, DC 20551
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HOME PAGE: http://www.giovannifavara.com

Lev Ratnovski

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://ratnovski.googlepages.com

European Central Bank, Financial Research Division

Germany

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