Macro-financial stability frameworks and external financial conditions

Report submitted to the G20 Finance Ministers and Central Bank Governors

Economies around the world currently face the extraordinary challenge of dealing with surging inflation and tightening global financial conditions amid elevated financial vulnerabilities. This highlights the importance of a macro-financial stability framework (MFSF) designed to limit the emergence of those vulnerabilities and mitigate their consequences. The report outlines the key features of MFSFs that could durably safeguard macro-financial stability, with a particular emphasis on how to deal with the risks linked to ebbs and flows in global financial conditions. MFSFs combine monetary, fiscal and macroprudential policies with FX intervention and capital flow management measures within a holistic framework. The aim is to prevent the interaction of macroeconomic and financial forces from undermining macroeconomic and financial stability. This requires preventive macro-financial stability policies to ward off vulnerabilities and to build policy buffers in good times so that they can be drawn down in bad times. Relying on the full array of policies is essential to achieve a balanced approach and to avoid overburdening individual ones.