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Macroprudential policy: case study from a tabletop exercise

Author

Listed:
  • Tobias Adrian
  • Patrick de Fontnouvelle
  • Emily Yang
  • Andrei Zlate

Abstract

Since the global financial crisis of 2007-09, policymakers and academics around the world have advocated the use of prudential tools for macroprudential purposes. This paper presents a macroprudential tabletop exercise that aimed at confronting Federal Reserve Bank presidents with a plausible, albeit hypothetical, macro-financial scenario that would lend itself to macroprudential considerations. In the tabletop exercise, the primary macroprudential objective was to reduce the likelihood and severity of possible future financial disruptions associated with the hypothetical overheating scenario. The scenario provided a path for key macroeconomic and financial variables, which were assumed to be observed through 2016:Q4, as well as the corresponding hypothetical projections for the interval from 2017:Q1 to 2018:Q4. Prudential tools under consideration included capital-based tools such as leverage ratios, countercyclical capital buffers, and sectoral capital requirements; liquidity-based tools such as liquidity coverage and net stable funding ratios; credit-based tools such as caps on loan-to-value ratios and margins; capital and liquidity stress testing; and supervisory guidance and moral suasion. In addition, participants were asked to consider using monetary policy tools for financial stability purposes. Under the hypothetical scenario, participants found many prudential tools less attractive owing to implementation lags and limited scope of application and favored those deemed to pose fewer implementation challenges, such as stress testing, margins on repo funding, and guidance. Also, monetary policy came more quickly to the fore as a financial stability tool than might have been thought before the exercise. The tabletop exercise abstracted from governance issues within the Federal Reserve System, focusing instead on economic mechanisms of alternative tools.

Suggested Citation

  • Tobias Adrian & Patrick de Fontnouvelle & Emily Yang & Andrei Zlate, 2015. "Macroprudential policy: case study from a tabletop exercise," Staff Reports 742, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:742
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Monetary Policy and Financial Stability
      by Kim Schoenholtz in Money, Banking and Financial Markets on 2016-11-14 19:24:34

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    Cited by:

    1. David Aikman & Jonathan Bridges & Anil Kashyap & Caspar Siegert, 2019. "Would Macroprudential Regulation Have Prevented the Last Crisis?," Journal of Economic Perspectives, American Economic Association, vol. 33(1), pages 107-130, Winter.
    2. ÅžimÅŸek, Alp & Caballero, Ricardo, 2019. "Prudential Monetary Policy," CEPR Discussion Papers 13832, C.E.P.R. Discussion Papers.
    3. Verona, Fabio & Martins, Manuel M.F. & Drumond, Inês, 2017. "Financial shocks, financial stability, and optimal Taylor rules," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 187-207.
    4. François Gourio & Anil K. Kashyap & Jae W. Sim, 2018. "The Trade offs in Leaning Against the Wind," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 66(1), pages 70-115, March.

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    More about this item

    Keywords

    macroprudential policy; tabletop exercise; financial overheating; monetary policy; financial stability;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G01 - Financial Economics - - General - - - Financial Crises

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