The International Aspects of Macroprudential Policy

Posted: 12 Aug 2021

See all articles by Kristin J. Forbes

Kristin J. Forbes

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: August 2021

Abstract

Countries are making more active use of macroprudential tools than in the past with the goal of improving the resilience of their broader financial systems. A growing body of evidence suggests that these tools can accomplish specific domestic goals and should reduce a country's vulnerability to many domestic and international shocks. The evidence also suggests, however, that these policies are not an elixir. They will not insulate economies from volatility, and they generate leakages to the nonbank financial system and spillovers through international borrowing, lending, and other cross-border exposures. Some of these unintended consequences can mitigate the effectiveness of macroprudential policies and generate new vulnerabilities and risks. The COVID-19 crisis provides a lens to evaluate the effectiveness of current macroprudential regulations during a period of extreme market volatility and economic stress. The experience to date suggests that macroprudential tools provide some benefits and should remain a focus of macroeconomic policy, but with realistic expectations about what they can accomplish.

Suggested Citation

Forbes, Kristin J., The International Aspects of Macroprudential Policy (August 2021). Annual Review of Economics, Vol. 13, pp. 203-228, 2021, Available at SSRN: https://ssrn.com/abstract=3903100 or http://dx.doi.org/10.1146/annurev-economics-081020-051248

Kristin J. Forbes (Contact Author)

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