Operationalising the selection and application of macroprudential instruments
The recent financial crisis has accelerated efforts to develop macroprudential policy frameworks. As a result, new or strengthened mandates for macroprudential policies have been established in a growing range of jurisdictions. A report released today by the Committee on the Global Financial System (CGFS) provides practical guidance for policymakers on how macroprudential instruments should be chosen, combined and applied.
This report - prepared by a Working Group chaired by José-Manuel González-Páramo, formerly of the European Central Bank - aims to help policymakers in operationalising macroprudential policies.
Specifically, it identifies three high-level criteria that are key in determining the selection and application of macroprudential instruments:
- the ability to determine the appropriate timing for the instrument's activation or deactivation;
- the instrument's effectiveness in achieving the stated policy objective; and
- the instrument's efficiency in terms of a cost-benefit assessment.
In trying to operationalise these criteria, the report proposes a number of practical tools that can help when choosing and implementing macroprudential instruments.
William C Dudley, CGFS Chairman and President of the Federal Reserve Bank of New York, says in the preface of the report: "We hope that the practical approaches described in this report will prove to be a relevant and timely input to the macroprudential policy frameworks that are currently being established in a large range of jurisdictions."
About the CGFS
The Committee on the Global Financial System monitors financial market developments and analyses their implications for financial stability.