IMF Staff Country Reports

This paper discusses a technical note on Macroprudential Policy Framework, Tools, and Calibration for the Luxembourg Financial Sector Assessment Program (FSAP). Strong policy support and high financial buffers are helping the financial sector weather the consecutive shocks, but pre-pandemic vulnerabilities have continued to rise. The authorities have made commendable progress in developing their operational framework in line with the 2017 FSAP recommendations. The 2024 FSAP suggests multiple avenues to reduce the risk of inaction bias and enhance the effectiveness of macroprudential policy. The macroprudential authorities should strengthen communication on macroprudential policy decisions, including in case of inaction, and enhance accessibility to the public. Communication by the systemic risk committee on macroprudential decisions and elements underpinning the decision should be systematic even if no action is taken, and accessibility to the public enhanced. In the short term, macroprudential policy should preserve resilience against real estate vulnerabilities through targeted capital-based measures, and then address structural indebtedness early in the recovery cycle through borrower-based measures.