Macro-financial policy analysis in bank-dependent economies: an operational manual

Since the global financial crisis of 2007-08, much academic and policy-oriented research has focused on the design, or redesign, of macroeconomic and financial policy frameworks. This literature has brought to the fore the role of banks and financial frictions in macroeconomic fluctuations. It has also explored how macroeconomic and regulatory policies should be combined to respond to domestic and external shocks, and how the institutional mandates of central banks and regulators should be formulated, or amended, when both price stability and financial stability matter for society. In that context, interactions between monetary policy and macroprudential regulation – with its focus on systemic risk, and the stability of the financial system as a whole – have received particular scrutiny. In middle-income countries, where vulnerability to external shocks has been a perennial problem, much attention has also been devoted to the role of foreign exchange intervention and short-term capital controls in promoting stability.