BibTeX
@MISC{_towardoperationalizing,
author = {},
title = {Toward Operationalizing Macroprudential Policies: When to Act? Summary},
year = {}
}
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Abstract
Operationalizing macroprudential policies requires progress on a number of fronts: developing ways to monitor a risk buildup, choosing indicators to detect when risks are about to materialize, and designing and using macroprudential policy tools. Establishing these robust frameworks will be a lengthy process. Using a structural model and empirical evidence, the following analysis takes a solid step forward on each of the interrelated tasks. Detecting both the slow buildup and the sudden materialization in systemic risk is the key to implementing good macroprudential policies. These two phases require two different sets of indicators. Slow-moving leading indicators signal risks are building up in the financial system and propagating to the real economy through financial intermediaries. High-frequency market-based indicators predict an imminent unwinding of systemic risk and potentially provide information on the extent of interconnectedness of financial institutions and its possible consequences. This chapter uses a structural model with financial and real sector linkages to help policymakers understand the underpinnings of a systemic risk buildup. Empirical exercises further test the capabilities of indicators to predict financial crises and alert policymakers to the need for action. After identifying the buildup in systemic risk, policymakers will inevitably want to consider policies best suited to address the problem. The
Keyphrases
systemic risk toward operationalizing macroprudential policy structural model macroprudential policy tool possible consequence robust framework real economy real sector slow-moving leading indicator signal risk financial system systemic risk buildup following analysis empirical evidence lengthy process different set financial intermediary good macroprudential policy empirical exercise risk buildup financial crisis high-frequency market-based indicator macroprudential policy financial institution sudden materialization provide information interrelated task slow buildup alert policymakers imminent unwinding solid step
