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Rules, Discretion, and Macro-Prudential Policy

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Author Info

  • Itai Agur
  • Sunil Sharma

Abstract

The paper examines the implementation of macro-prudential policy. Given the coordination, flow of information, analysis, and communication required, macro-prudential frameworks will have weaknesses that make it hard to implement policy. And dealing with the political economy is also likely to be challenging. But limiting discretion through the formulation of macro-prudential rules is complicated by the difficulties in detecting and measuring systemic risk. The paper suggests that oversight is best served by having a strong baseline regulatory regime on which a time-varying macro-prudential policy can be added as conditions warrant and permit.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/65.

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Length: 32
Date of creation: 08 Mar 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/65

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Related research

Keywords: Macroprudential Policy; Monetary policy; Political economy; Financial systems; Financial risk; rules; decision makers; regulations; regulatory framework; regulatory regime; regulatory reform; regulatory responsibilities; board member; regulatory departments; risk analysis; legal framework; economic activity; insurance premiums; institutional framework; institutional incentives;

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References

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  1. Lasse Heje Pederson & Markus K Brunnermeier, 2007. "Market Liquidity and Funding Liquidity," FMG Discussion Papers dp580, Financial Markets Group.
  2. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-60, October.
  3. David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia, & Elizabeth Martin, & Nada Mora & Gabriel Sterne & Matthew Willison, 2011. "Funding Liquidity Risk in a Quantitative Model of Systemic Stability," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 12, pages 371-410 Central Bank of Chile.
  4. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007. "Network models and financial stability," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2033-2060, June.
  5. Ignazio Angeloni & Ester Faia, 2009. "A Tale of Two Policies: Prudential Regulation and Monetary Policy with Fragile Banks," Kiel Working Papers 1569, Kiel Institute for the World Economy.
  6. Andrei Shleifer & Robert Vishny, 2011. "Fire Sales in Finance and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 29-48, Winter.
  7. Inci Ötker & Aditya Narain & Anna Ilyina & Jay Surti, 2011. "The Too-Important-to-Fail Conundrum," IMF Staff Discussion Notes 11/12, International Monetary Fund.
  8. Richard J. Rosen, 2002. "Is three a crowd? competition among regulators in banking," Proceedings 906, Federal Reserve Bank of Chicago.
  9. Luigi Zingales, 2011. "A New Capital Regulation for Large Financial Institutions," American Law and Economics Review, Oxford University Press, vol. 13(2), pages 453-490.
  10. Gianni De Nicoló & Giovanni Favara & Lev Ratnovski, 2012. "Externalities and Macroprudential Policy," IMF Staff Discussion Notes 12/05, International Monetary Fund.
  11. Alan D. Morrison, 2011. "Systemic risks and the 'too-big-to-fail' problem'," Oxford Review of Economic Policy, Oxford University Press, vol. 27(3), pages 498-516.
  12. Erlend Nier & Luis Ignacio Jácome & Jacek Osinski & Pamela Madrid, 2011. "Towards Effective Macroprudential Policy Frameworks," IMF Working Papers 11/250, International Monetary Fund.
  13. Masciandaro, Donato & Quintyn, Marc & Taylor, Michael W., 2008. "Inside and outside the central bank: Independence and accountability in financial supervision: Trends and determinants," European Journal of Political Economy, Elsevier, vol. 24(4), pages 833-848, December.
  14. Anat Admati & Martin Hellwig, 2013. "The Bankers' New Clothes: What's Wrong with Banking and What to Do about It," Economics Books, Princeton University Press, edition 1, volume 1, number 9929.
  15. Reza Siregar, 2011. "Macro-Prudential Approaches to Banking Regulation : Perspectives of Selected Asian Central Banks," Finance Working Papers 23211, East Asian Bureau of Economic Research.
  16. Morris, Charles & Hoenig, Thomas, 2011. "Restructuring the Banking System to Improve Safety and Soundness," MPRA Paper 47614, University Library of Munich, Germany, revised Dec 2012.
  17. Michal Kowalik, 2011. "Countercyclical capital regulation: should bank regulators use rules or discretion?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II.
  18. Charles Goodhart, 2011. "The Macro-Prudential Authority: Powers, Scope and Accountability," FMG Special Papers sp203, Financial Markets Group.
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Citations

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Cited by:
  1. Itai Agur & Maria Demertzis, 2013. "Leaning Against the Wind and the Timing of Monetary Policy," IMF Working Papers 13/86, International Monetary Fund.
  2. Rita Basto, 2013. "A Macro-prudential Policy for Financial Stability," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  3. Donato Masciandaro & Marc Quintyn, 2013. "The Evolution of Financial Supervision: the Continuing Search for the Holy Grail," SUERF 50th Anniversary Volume Chapters, SUERF - The European Money and Finance Forum.

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