How do COVID-19-caused financial dislocations inform policy responses?
The European Central Bank’s November 2019 Financial Stability Review highlighted the risks to growth in an environment of global uncertainty. On the whole, the ECB report is comprehensive and covers the main risks to euro-area financial stability, we highlight issues that deserve more attention.
This article examines whether there are regional differences in house price growth within European countries and find a stronger cyclical pattern in capital cities compared to other regions, indicating a clear rationale for regional-level tools. The authors recommend using macro-prudential measures at a regional level, in particular loan-to-value and debt-to-income limits, to dampen the housing boom-bust cycle.
Bruegel's Maria Demertzis welcomes Yale Law School professor Yair Listokin to this Director's Cut of 'The Sound of Economics', to discuss how law might be deployed as a macroeconomic tool to counter financial crisis.
How does monetary policy impact upon macroprudential regulation? What are the effects on financial stability? This working paper models monetary policy’s transmission to bank risk taking, and its interaction with a regulator’s optimization problem.
The ability of macroprudential policies to assure financial stability and thus leave central banks free to assign the interest rate tool exclusively to price stability is unproven. As the Maginot line did not protect France from a German invasion in WWII, so macroprudential policy may not be sufficient to counter financial instability. Central banks should prepare to deal with dilemmas in the use of the interest rate.
What’s at stake: the emergence of renewed interest in macroprudential policy has characterised the aftermath of the great recession. There is not yet full agreement on what the tasks of macroprudential policy is or how it should be carried out, but there is a clear understanding that there is an important political economy dimension to it. We review some of the recent contribution on this.
In a recent paper, I looked at the evolution of financial cycles in the euro area and at their link with capital flows. Here, I focus on how those findings inform our understanding of euro-area macroeconomic imbalances, revisiting the analysis of national savings and investment correlation.
Have Central Banks lost their ability to control domestic inflation? Are macroprudential tools sufficient to ensure financial stability? Do new monetary tools, a closer relationship with fiscal policy and the renewed financial stability mandate require a new central banking paradigm?
While there is now consensus that financial supervision has to focus on the aggregate (macroprudential), in addition to the individual (microprudential), there is no agreed macroprudential framework for measuring financial imbalances and applying policies to correct such imbalances. This paper focuses on these two open questions in the so-called time dimension of macroprudential policy.
The financial crisis has prompted a renewed interest in macro-prudential policy as a framework to address the stability of the financial system as a whole. While being an objective of global relevance, preserving financial stability is even more important in contexts in which financial linkages are strong and deep, such as in the Euro area.
The financial crisis has prompted a renewed interest in macro-prudential policy as a framework to address the stability of the financial system as a whole, rather than only its individual components. The purpose of this paper is to contribute to the European macro-prudential discussion by establishing empirically the special challenges that the set-up of macro-prudential policy in the euro area needs to confront.