Macroprudential frameworks: implementation and effectiveness

We use questionnaire responses as well as new data sets to assess the deployment and effectiveness of macroprudential instruments for a sample of emerging market economies. First, we highlight the challenges that authorities face in the measurement of financial stability and systemic risk, the “ultimate objective” of macroprudential frameworks. We argue that these challenges naturally extend to measuring “macroprudential policy stance”. Second, we document the “inaction bias” for our sample of EM economies and highlight the limited use of numerous instruments that authorities have in their toolkits. Third, we discuss and provide some evidence that governance frameworks, especially the role of central banks, may be relevant for both implementation and outcomes. Fourth, we infer from questionnaires that macroprudential tools are commonly tailored for specific sectors (especially the property sector), regions and institutions. Finally, we provide some evidence that macroprudential measures, indeed, have an impact on a number of financial risk indicators.