Evaluating the Net Benefits of Macroprudential Policy: A Cookbook

By Nicolas Arregui, Jaromir Benes, Ivo Krznar, Srobona Mitra, Andre O Santos

July 17, 2013

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Nicolas Arregui, Jaromir Benes, Ivo Krznar, Srobona Mitra, and Andre O Santos. Evaluating the Net Benefits of Macroprudential Policy: A Cookbook, (USA: International Monetary Fund, 2013) accessed December 30, 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

The paper proposes a simple, new, analytical framework for assessing the cost and benefits of macroprudential policies. It proposes a measure of net benefits in terms of parameters that can be estimated: the probability of crisis, the loss in output given crisis, policy effectiveness in bringing down both the probability and damage during crisis, and the output-cost of a policy decision. It discusses three types of policy leakages and identifies instruments that could best minimize the leakages. Some rules of thumb for policymakers are provided.

Subject: Banking, Credit, Financial crises, Financial institutions, Financial sector policy and analysis, Housing prices, Loans, Macroprudential policy, Money, Prices

Keywords: Asset price growth, Bank capitalization, Banking sector, Capital requirement, Cost and Benefits, Cost of capital, Credit, Credit growth, Crisis cost, Crisis risk, Economic activity, Europe, Global, Growth cap, House price growth, Housing prices, Interest rate, Liquidity risk indicator, Loans, Macroprudential Policy, Parent bank, Policy Effectiveness, Risk weight, WP

Publication Details

Pages:

73
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/167
Stock No:

WPIEA2013167
ISBN:

9781484335727
ISSN:

1018-5941

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