Macroprudential Policy: Results from a Tabletop Exercise

31 Pages Posted: 17 Jul 2019

See all articles by Denise J. Duffy

Denise J. Duffy

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Joseph G. Haubrich

Federal Reserve Bank of Cleveland

Anna Kovner

Federal Reserve Bank of New York

Alex Musatov

Federal Reserve Banks - Federal Reserve Bank of Dallas

Edward S. Prescott

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research

Thomas D. Tallarini

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Alexandros Vardoulakis

Board of Governors of the Federal Reserve System

Emily Yang

Federal Reserve Bank of New York

Andrei Zlate

Board of Governors of the Federal Reserve System

Date Written: May 21, 2019

Abstract

This paper presents a tabletop exercise designed to analyze macroprudential policy. Several senior Federal Reserve officials were presented with a hypothetical economy as of 2020:Q2 in which commercial real estate and nonfinancial debt valuations were very high. After analyzing the economy and discussing the use of monetary and macroprudential policy tools, participants were then presented with a hypothetical negative shock to commercial real estate valuations that occurred in the second half of 2020. Participants then discussed the use of the tools during an incipient downturn. Some of the findings of the exercise were that during an asset boom, there were limits to the effectiveness of U.S. macroprudential tools in controlling narrow risks and that changes to the fed funds rate may not always simultaneously meet macroeconomic and financial stability goals. Some other findings were that during a downturn, it would be desirable to use high-frequency indicators for deciding when to release the countercyclical capital buffer (CCyB) and that tensions exist between microprudential and macroprudential goals when using the CCyB and the stress test.

Keywords: financial stability, macroprudential policy, monetary policy

JEL Classification: E58, G01, G18

Suggested Citation

Duffy, Denise J. and Haubrich, Joseph G. and Kovner, Anna and Musatov, Alex and Prescott, Edward (Ned) Simpson and Rosen, Richard J. and Tallarini, Thomas D. and Vardoulakis, Alexandros and Yang, Emily and Zlate, Andrei, Macroprudential Policy: Results from a Tabletop Exercise (May 21, 2019). FRB of Cleveland Working Paper No. 19-11, May 2019. Available at SSRN: https://ssrn.com/abstract=3393947

Denise J. Duffy

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Joseph G. Haubrich

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States
216-579-2802 (Phone)
216-579-3050 (Fax)

Anna Kovner

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Alex Musatov

Federal Reserve Banks - Federal Reserve Bank of Dallas

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Edward (Ned) Simpson Prescott (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

P.O. Box 6387
Cleveland, OH 44101
United States

HOME PAGE: http://https://www.clevelandfed.org/people-search?pid=f8ca941e-4b51-41f6-95f8-c87f1d3806e5

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-6368 (Phone)
312-294-6262 (Fax)

Thomas D. Tallarini

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

Alexandros Vardoulakis

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Emily Yang

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Andrei Zlate

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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