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The history of cyclical macroprudential policy in the United States

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  • Douglas J. Elliott
  • Greg Feldberg
  • Andreas Lehnert

Abstract

Since the financial crisis of 2007-2009, policymakers have debated the need for a new toolkit of cyclical "macroprudential" policies to constrain the build-up of risks in financial markets, for example, by dampening credit-fueled asset bubbles. These discussions tend to ignore America's long and varied history with many of the instruments under consideration to smooth the credit cycle, presumably because of their sparse usage in the last three decades. We provide the first comprehensive survey and historic narrative of these efforts. The tools whose background and use we describe include underwriting standards, reserve requirements, deposit rate ceilings, credit growth limits, supervisory pressure, and other financial regulatory policy actions. The contemporary debates over these tools highlighted a variety of concerns, including "speculation," undesirable rates of inflation, and high levels of consumer spending, among others. Ongoing statistical work suggests that macroprudential tightening lowers consumer debt but macroprudential easing does not increase it.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2013-29.

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Date of creation: 2013
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Handle: RePEc:fip:fedgfe:2013-29

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  1. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-61, April.
  2. Paul H. Kupiec, 1997. "Margin requirements, volatility, and market integrity: what have we learned since the crash?," Finance and Economics Discussion Series 1997-22, Board of Governors of the Federal Reserve System (U.S.).
  3. Reinhart, Carmen M. & Rogoff, Kenneth S., 2013. "Shifting Mandates: The Federal Reserve's First Centennial," Scholarly Articles 11129184, Harvard University Department of Economics.
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  6. Mark A. Carlson & David C. Wheelock, 2012. "The lender of last resort: lessons from the Fed’s first 100 years," Working Papers 2012-056, Federal Reserve Bank of St. Louis.
  7. Saul B. Klaman, 1961. "The Postwar Residential Mortgage Market," NBER Books, National Bureau of Economic Research, Inc, number klam61-1.
  8. Jane D'Arista, James Boyce, 2002. "Where Credit Is Due: Allocating Credit to Advance Environmental Goals," Challenge, M.E. Sharpe, Inc., vol. 45(3), pages 58-82, May.
  9. Mark A. Carlson, 2013. "Lessons from the historical use of reserve requirements in the United States to promote bank liquidity," Finance and Economics Discussion Series 2013-11, Board of Governors of the Federal Reserve System (U.S.).
  10. Joseph D. Coppock, 1940. "Government Agencies of Consumer Instalment Credit," NBER Books, National Bureau of Economic Research, Inc, number copp40-1.
  11. Kenneth A. Snowden, 2010. "The Anatomy of a Residential Mortgage Crisis: A Look Back to the 1930s," NBER Working Papers 16244, National Bureau of Economic Research, Inc.
  12. repec:ucp:bkecon:9780226519999 is not listed on IDEAS
  13. Anil K Kashyap & Richard Berner & Charles A E Goodhart, 2011. "The Macroprudential Toolkit," IMF Economic Review, Palgrave Macmillan, vol. 59(2), pages 145-161, June.
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