Evaluating the Net Benefits of Macroprudential Policy: A Cookbook
July 17, 2013
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Summary
The paper proposes a simple, new, analytical framework for assessing the cost and benefits of macroprudential policies. It proposes 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, and the output-cost of a policy decision. It discusses three types of policy leakages and identifies instruments that could best minimize the leakages. Some rules of thumb for policymakers are provided.
Subject: Banking, Credit, Financial crises, Financial institutions, Financial sector policy and analysis, Housing prices, Loans, Macroprudential policy, Money, Prices
Keywords: 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
Pages:
73
Volume:
2013
DOI:
Issue:
167
Series:
Working Paper No. 2013/167
Stock No:
WPIEA2013167
ISBN:
9781484335727
ISSN:
1018-5941
