Evaluating the Net Benefits of Macroprudential Policy: A Cookbook
IMF Working Papers, July 17, 2013
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Bibliographic details
- Authors: Nicolas Arregui, Jaromir Benes, Ivo Krznar, Srobona Mitra, Andre O Santos
- Published: July 17, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484335727.001
Summary and Analytical Framework
- Proposes a simple, new, analytical framework for assessing the cost and benefits of macroprudential policies.
- Defines a measure of net benefits in terms of parameters that can be estimated:
- the probability of crisis,
- the loss in output given crisis,
- policy effectiveness in bringing down both the probability and damage during crisis,
- the output-cost of a policy decision.
Parameters, Estimation, and Key Concepts
- Net-benefit measure expressed using estimable parameters:
- probability of crisis,
- loss in output given crisis,
- policy effectiveness (reducing probability and crisis damage),
- output-cost of implementing policy.
- Subject areas emphasized:
- Banking, Credit, Financial crises, Financial institutions, Financial sector policy and analysis, Housing prices, Loans, Macroprudential policy, Money, Prices.
- Keywords highlighted include:
- asset price growth, bank capitalization, banking sector, capital requirement, Cost and Benefits, cost of capital, Credit, credit growth, crisis cost, crisis risk, economic activity, Europe, Global, growth cap, house price growth, Housing prices, interest rate, liquidity risk indicator, Loans, Macroprudential Policy, parent bank, Policy Effectiveness, risk weight, WP.
Policy Leakages and Instrument Selection
- Discusses three types of policy leakages.
- Identifies instruments that could best minimize the leakages (instruments are discussed in the paper).
Rules of Thumb and Recommendations for Policymakers
- Provides some rules of thumb for policymakers (specific rules are provided in the paper).