The More the Merrier? Macroprudential Instrument Interactions and Effective Policy Implementation

93 Pages Posted: 18 Mar 2023

See all articles by Marco Lo Duca

Marco Lo Duca

European Central Bank (ECB)

mehdi bartal

Mohammed VI Polytechnic University (UM6P)

Edita Giedraitė

Bank of Lithuania

Peik Granlund

Finanssivalvonta

Niamh Hallissey

Central Bank of Ireland

Pavol Jurča

Národná banka Slovenska

Charalampos Kouratzoglou

European Central Bank (ECB)

Petra Lennartsdotter

Sveriges Riksbank - Monetary Policy

Diana Lima

Bank of Portugal

Mara Pirovano

European Central Bank (ECB)

Algirdas Prapiestis

Bank of Lithuania

Martin Saldias

European Central Bank (ECB)

Ibrahima Sangaré

Banque Centrale du Luxembourg

Diogo Serra

Bank of Portugal

Fatima Silva

Bank of Portugal

Eugen Tereanu

European Central Bank (ECB)

Kristiina Tuomikoski

Finanssivalvonta

Jukka Vauhkonen

Bank of Finland - Research

Date Written: March, 2023

Abstract

Macroprudential policies since the global financial crisis have been central to safeguarding financial stability. Despite the increasing use of multiple policy instruments, a detailed understanding of interactions among them is still needed to assess how instrument combinations can enhance the effectiveness of macroprudential action. This paper proposes a conceptual framework for informing the choice of combinations of macroprudential instruments, looking at the role of micro and macroeconomic transmission channels, interactions across policy objectives, the importance of country specificities and linkages with other macroeconomic or supervisory policies. It also reviews considerations related to circumvention, leakages, time of activation and communication of policies, all of which may affect the desirability of different combinations of macroprudential instruments. The paper also discusses a possible operational use of combinations of macroprudential instruments to address selected risks and provides a rich analysis of instrument interactions within the categories of borrower-based and, respectively, capital-based measures. The paper concludes that the combinations of capital and borrower-based instruments ensures a comprehensive coverage of different systemic risks and entail important synergies.

Keywords: banks, financial stability, macroprudential policy

JEL Classification: G21, G28

Suggested Citation

Lo Duca, Marco and bartal, mehdi and Giedraitė, Edita and Granlund, Peik and Hallissey, Niamh and Jurča, Pavol and Kouratzoglou, Charalampos and Lennartsdotter, Petra and Lima, Diana and Pirovano, Mara and Prapiestis, Algirdas and Saldias, Martin and Sangaré, Ibrahima and Serra, Diogo and Silva, Fatima and Tereanu, Eugen and Tuomikoski, Kristiina and Vauhkonen, Jukka, The More the Merrier? Macroprudential Instrument Interactions and Effective Policy Implementation (March, 2023). ECB Occasional Paper No. 2023/310, Available at SSRN: https://ssrn.com/abstract=4392498 or http://dx.doi.org/10.2139/ssrn.4392498

Marco Lo Duca (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mehdi Bartal

Mohammed VI Polytechnic University (UM6P) ( email )

Rabat
Morocco

Edita Giedraitė

Bank of Lithuania

Totoriu 4
Vilnius, LT-01121
Lithuania

Peik Granlund

Finanssivalvonta ( email )

Helsinki
Finland

Niamh Hallissey

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Pavol Jurča

Národná banka Slovenska ( email )

Bratislava
Slovakia

Charalampos Kouratzoglou

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Petra Lennartsdotter

Sveriges Riksbank - Monetary Policy ( email )

SE-103 37 Stockholm
Sweden

Diana Lima

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Mara Pirovano

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Algirdas Prapiestis

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

Martin Saldias

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ibrahima Sangaré

Banque Centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

Diogo Serra

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Fatima Silva

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Eugen Tereanu

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Kristiina Tuomikoski

Finanssivalvonta

Helsinki
Finland

Jukka Vauhkonen

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland
+358-9-1832111 (Phone)
+358-9-624842 (Fax)

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