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Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward

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  • Claudio Borio

    ()
    (Research and Statistics, Bank for International Settlements, Basel CH-4002, Switzerland)

Abstract

The recent financial crisis has triggered a major rethink of analytical approaches and policy toward financial stability. The crisis has encouraged a sharper focus on systemic risk, the inclusion of a financial sector in macroeconomic models, a shift from a microprudential to a macroprudential orientation in regulation and supervision, and questions about whether price stability is a sufficient criterion to guide monetary policy. In the process, it has led to a rediscovery of the macroeconomic roots of financial instability. This review argues that this development is welcome but has not gone far enough. To substantiate this conclusion, the review documents this analytical and policy journey before suggesting a way forward.

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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Financial Economics.

Volume (Year): 3 (2011)
Issue (Month): 1 (December)
Pages: 87-117

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Handle: RePEc:anr:refeco:v:3:y:2011:p:87-117

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Keywords: financial (in)stability; systemic risk; capital; liquidity; monetary policy; monetary economy;

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Cited by:
  1. Arnold, Bruce & Borio, Claudio & Ellis, Luci & Moshirian, Fariborz, 2012. "Systemic risk, macroprudential policy frameworks, monitoring financial systems and the evolution of capital adequacy," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3125-3132.
  2. Ko Munakata & Koji Nakamura & Yuki Teranishi, 2013. "Optimal Macroprudential Policy," CAMA Working Papers 2013-51, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Claudio Borio & Haibin Zhu, 2008. "Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?," BIS Working Papers 268, Bank for International Settlements.
  4. Luiz A. Pereira da Silva & Adriana Soares Sales & Wagner Piazza Gaglianone, 2012. "Financial Stability in Brazil," Working Papers Series 289, Central Bank of Brazil, Research Department.
  5. Anton Korinek, 2011. "The New Economics of Capital Controls Imposed for Prudential Reasons+L4888," IMF Working Papers 11/298, International Monetary Fund.

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