IDEAS home Printed from
   My bibliography  Save this paper

Policies to Mitigate Procyclicality


  • International Monetary Fund


This paper examines the reasons for this, specifically focusing on regulations or market practices that can accentuate economic cycles. Although recognizing various practical limitations, new policy responses are identified that could help to mitigate procyclicality. Although economic cycles are taken as a natural and recurring phenomenon, there are ways in which private sector behavior and practices, prudential regulation, and macroeconomic policies can act to magnify such cycles. A key challenge for policymakers will be to counter the exacerbating effects of prudential regulations while at the same time keeping the risk-based decision-making processes that are increasingly used in the private sector. Procyclicality is also embedded in credit risk management systems and guidelines, because the inputs (default probabilities, loss severities, default correlations, and credit ratings) tend to vary positively with economic cycles. Credit ratings are supposed to be assigned on a “through-the-cycle” basis, and not according to transitory fluctuations in credit quality.

Suggested Citation

  • International Monetary Fund, 2009. "Policies to Mitigate Procyclicality," IMF Staff Position Notes 2009/009, International Monetary Fund.
  • Handle: RePEc:imf:imfspn:2009/009

    Download full text from publisher

    File URL:
    Download Restriction: no


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfspn:2009/009. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.