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Macroprodential Policy under Uncertainty

Author

Listed:
  • Saleem Bahaj

    (Bank of England and Centre for Macroeconomics)

  • Angus Foulis

    (Bank of England and Centre for Macroeconomics)

Abstract

We argue that uncertainty over the impact of macroprudential policy need not make a policymaker more cautious. Our starting point is the classic finding of Brainard that uncertainty over the impact of a policy instrument will make a policymaker less active. This result is challenged in a series of richer models designed to take into account the more complex reality faced by a macroprudential policymaker. We find that asymmetries in policy objectives, the presence of unquantifiable sources of risk, the ability to learn from policy, and private-sector uncertainty over policy objectives can all lead to more active policy.

Suggested Citation

  • Saleem Bahaj & Angus Foulis, 2017. "Macroprodential Policy under Uncertainty," International Journal of Central Banking, International Journal of Central Banking, vol. 13(3), pages 119-154, September.
    • Handle: RePEc:ijc:ijcjou:y:2017:q:3:a:4
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    Cited by:

    1. Górajski, Mariusz & Kuchta, Zbigniew, 2023. "Coordination and non-coordination risks of monetary and macroprudential authorities: A robust welfare analysis," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    2. Tihana Škrinjarić, 2023. "Credit-to-GDP Gap Estimates in Real Time: A Stable Indicator for Macroprudential Policy Making in Croatia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(3), pages 582-614, September.
    3. Pervin Dadashova & Magnus Jonsson, 2019. "Mitigating the Cost of Stricter Macroprudential Policies," Working Papers 02/2019, National Bank of Ukraine.
    4. Punzi, Maria Teresa, 2020. "The impact of uncertainty on the macro-financial linkage with international financial exposure," Journal of Economics and Business, Elsevier, vol. 110(C).
    5. Marcus Buckmann & Paula Gallego Marquez & Mariana Gimpelewicz & Sujit Kapadia & Katie Rismanchi, 2021. "The more the merrier? Evidence from the global financial crisis on the value of multiple requirements in bank regulation," Bank of England working papers 905, Bank of England.

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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