In the decades prior to the crisis, macroeconomic management evolved to assign a strong role to monetary policy, with a primary focus on price stability. The framework of monetary policy was broadly converging toward one with an inflation target (explicit or implicit) and a short-term interest rate as a tool (Blanchard, Dell’Ariccia and Mauro 2010).
The interaction between monetary and macroprudential policies
Stijn Claessens, Fabian Valencia, 14 March 2013
Macroprudential supervision in banking union
Dirk Schoenmaker, 9 December 2012
There is a strong tendency to focus on the stability and soundness of individual banks. Supervisors may thus be bogged down by the details of these banks, while losing sight of emerging imbalances in the wider financial system.
Macroprudential policy: Economic rationale and optimal tools
Giovanni Favara, Lev Ratnovski, 6 August 2012
The purpose of macroprudential policy is to reduce ‘systemic risk’. While hard to define formally, systemic risk is understood as 'the risk of developments that threaten the stability of the financial system as a whole and consequently the broader economy” (Bernanke, 2009). The notion is meant to include the types of financial imbalances that led to the 2007-2008 bust.
Macroprudential policy: What instruments and how to use them? Lessons from country experiences
Francesco Columba, Alejo Costa, Cheng Hoon Lim, 16 March 2012
Macroprudential policy is quickly gaining traction in international circles as a useful tool to address system-wide risks in the financial sector (see for example Borio 2011, Galati and Moessner 2011, Viñals 2010, 2011). Yet the analytical and operational underpinnings of a macroprudential framework are not fully understood and the effectiveness of the instruments is uncertain.
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