An Overview of Macroprudential Policy Tools

December 11, 2014

Preview Citation

Format: Chicago

Stijn Claessens. An Overview of Macroprudential Policy Tools, (USA: International Monetary Fund, 2014) accessed December 4, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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

Subject: Credit, Financial crises, Financial sector policy and analysis, Financial sector stability, Macroprudential policy, Money, Systemic risk

Keywords: Assets bank, Bank, Bank leverage, Capital requirement, Credit, Credit crunch, Externalities, Externality, Financial intermediation, Financial sector stability, Financial stability, Foreign currency, Global, House price inflation, Interconnectedness externality, Macroprudential policy, Market failures, Market failures policy, Monetary policy, Procyclicality, Resource allocation, Systemic risk, Systemic risks, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/214
Stock No:

WPIEA2014214
ISBN:

9781484358115
ISSN:

1018-5941

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