Balancing Financial Stability and Housing Affordability

2018 ◽  
Vol 2018 (237) ◽  
Author(s):  
Troy Matheson
Keyword(s):  
Housing Market ◽  
Systemic Risk ◽  
Financial Stability ◽  
Property Tax ◽  
Policy Instruments ◽  
Policy Instrument ◽  
Housing Affordability ◽  
Tax Rates ◽  
Macroprudential Policy ◽  
Property Transfer

Housing market imbalances are a key source of systemic risk and can adversely affect housing affordability. This paper utilizes a stylized model of the Canadian economy that includes policymakers with differing objectives—macroeconomic stability, financial stability, and housing affordability. Not surprisingly, when faced with multiple objectives, deploying more policy instruments can lead to better outcomes. The results show that macroprudential policy can be more effective than policies based on adjusting propertytransfer taxes because property-tax policy entails excessive volatility in tax rates. They also show that if property-transfer taxes are used as a policy instrument, taxes targeted at a broader-set of homebuyers can be more effective than measures targeted at a smaller subset of homebuyers, such as nonresident homebuyers.

Macroprudential Policy Instruments of Central Banks

2012 ◽  
pp. 32-47
Author(s):  
S. Andryushin ◽  
V. Kuznetsova
Keyword(s):  
Systemic Risk ◽  
Financial Stability ◽  
Financial System ◽  
Policy Instruments ◽  
Central Banks ◽  
Macroprudential Policy ◽  
Policy Studies ◽  
The Future ◽  
Financial Cycles

The paper analyzes central banks macroprudencial policy and its instruments. The issues of their classification, option, design and adjustment are connected with financial stability of overall financial system and its specific institutions. The macroprudencial instruments effectiveness is evaluated from the two points: how they mitigate temporal and intersectoral systemic risk development (market, credit, and operational). The future macroprudentional policy studies directions are noted to identify the instruments, which can be used to limit the financial systemdevelopment procyclicality, mitigate the credit and financial cycles volatility.

scholarly journals Financial Stability Indicators – The Case of Croatia

2016 ◽  
Vol 5 (1) ◽  
pp. 113-140 ◽  
Author(s):  
Mirna Dumičić
Keyword(s):  
Principal Component Analysis ◽  
Systemic Risk ◽  
Financial Stability ◽  
Principal Component ◽  
Small Open Economies ◽  
Macroprudential Policy ◽  
Policy Makers ◽  
The Public ◽  
Systemic Risks ◽  
Accumulation Index

Abstract This paper considers financial stability through the processes of accumulation and materialisation of systemic risks. To this end, the method of principal component analysis on the example of Croatia has been used to construct two composite indicators – a systemic risk accumulation index and an index reflecting the consequences of systemic risk materialisation. In the construction of the indices, the features and risks specific to small open economies were considered. Such an approach to systemic risk analysis facilitates the monitoring and understanding of the degree of financial stability and communication of macroprudential policy makers with the public.

scholarly journals Macroprudential Policy Versus Other Economic Policies

2021 ◽  
Vol 23 (2) ◽  
pp. 33-66
Author(s):  
Eva Lorenčič ◽  
◽  
Mejra Festić ◽  
Keyword(s):  
Financial Crises ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Financial System ◽  
Policy Instruments ◽  
Economic Policies ◽  
Macroprudential Policy ◽  
Descriptive Research ◽  
The Stability ◽  
The Global Financial Crisis

After the global financial crisis of 2007, macroprudential policy instruments have gained in recognition as a crucial tool for enhancing financial stability. Monetary policy, fiscal policy, and microprudential policy operate with a different toolkit and focus on achieving goals other than the stability of the financial system as a whole. In ligh of this, a fourth policy – namely macroprudential policy – is required to mitigate and prevent shocks that could destabilize the financial system as a whole and compromise financial stability. The aim of this paper is to contrast macroprudential policy with other economic policies and explain why other economic policies are unable to attain financial stability, which in turn justifies the need for a separate macroprudential policy, the ultimate goal whereof is precisely financial stability of the financial system as a whole. Our research results based on the descriptive research method indicate that, in order to prevent future financial crises, it is indispensable to combine both the microprudential and the macroprudential approach to financial stability. This is because the causes of the crises are often such that they cannot be prevented or mitigated by relying only on microprudential or only on macroprudential policy instruments.

scholarly journals The Impact of Seven Macroprudential Policy Instruments on Financial Stability in Six Euro Area Economies

2021 ◽  
Vol 21 (3) ◽  
pp. 259-290
Author(s):  
Eva Lorenčič ◽  
Mejra Festić
Keyword(s):  
Growth Rate ◽  
Euro Area ◽  
Financial Stability ◽  
Policy Instruments ◽  
Macroprudential Policy ◽  
Credit Growth ◽  
Leverage Ratio ◽  
Maturity Mismatch ◽  
Degree Of Maturity ◽  
Solvency Ratio

Abstract The aim of this paper is to investigate whether macroprudential policy instruments can influence the credit growth rate and hence financial stability. We use a fixed effects panel regression model to test the following hypothesis for six euro area economies (Austria, Finland, Germany, Italy, Netherlands and Spain) during time span 2010 Q3 to 2018 Q4: “Macroprudential policy instruments (degree of maturity mismatch; interbank loans as a percentage of total loans; leverage ratio; non-deposit funding as a percentage of total funding; loan-to-value ratio; loan-to-deposit ratio; solvency ratio) enhance financial stability, as measured by credit growth”. Our empirical results suggest that the degree of maturity mismatch, non-deposit funding as a percentage of total funding, loan-to-value ratio and loan-to-deposit ratio exhibit the predicted impact on the credit growth rate and therefore on financial stability. On the other hand, interbank loans as a percentage of total loans, leverage ratio, and solvency ratio do not exhibit the expected impact on the response variable. Since only four regressors (out of seven) have the signs predicted by our hypothesis, we can only partly confirm it.

Macroprudential policy – closing the financial stability gap

2017 ◽  
Vol 25 (4) ◽  
pp. 334-359 ◽  
Author(s):  
Stephan Fahr ◽  
John Fell
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Relative Effectiveness ◽  
Policy Instruments ◽  
Price Stability ◽  
Macroprudential Policy ◽  
Content Type ◽  
Macroprudential Policies ◽  
Trade Offs ◽  
System Resilience

Purpose The global financial crisis demonstrated that monetary policy alone cannot ensure both price and financial stability. According to the Tinbergen (1952) rule, there was a gap in the policymakers’ toolkit for safeguarding financial stability, as the number of available policy instruments was insufficient relative to the number of policy objectives. That gap is now being closed through the creation of new macroprudential policy instruments. Both monetary policy and macroprudential policy have the capacity to influence both price and financial stability objectives. This paper develops a framework for determining how best to assign instruments to objectives. Design/methodology/approach Using a simplified New-Keynesian model, the authors examine two sets of policy trade-offs, the first concerning the relative effectiveness of monetary and macroprudential policy instruments in achieving price and financial stability objectives and the second concerning trade-offs between macroprudential policy instruments themselves. Findings This model shows that regardless of whether the objective is to enhance financial system resilience or to moderate the financial cycle, macroprudential policies are more effective than monetary policy. Likewise, monetary policy is more effective than macroprudential policy in achieving price stability. According to the Mundell (1962) principle of effective market classification, this implies that macroprudential policy instruments should be paired with financial stability objectives, and monetary policy instruments should be paired with the price stability objective. The authors also find a trade-off between the two sets of macroprudential policy instruments, which indicates that failure to moderate the financial cycle would require greater financial system resilience. Originality/value The main contribution of the paper is to establish – with the help of a model framework – the relative effectiveness of monetary and macroprudential policies in achieving price and financial stability objectives. By so doing, it provides a rationale for macroprudential policy and it shows how macroprudential policy can unburden monetary policy in leaning against the wind of financial imbalances.

scholarly journals Macroprudential policy and financial stability, role and tools

2020 ◽  
Vol 4 (4) ◽  
pp. 45-54
Author(s):  
Mehdi Bouchetara ◽  
Abdelkader Nassour ◽  
Sidi Eyih
Keyword(s):  
Financial Crisis ◽  
Financial Stability ◽  
Full Employment ◽  
Financial System ◽  
Policy Instruments ◽  
Banking Crises ◽  
Real Economy ◽  
Macroprudential Policy ◽  
Systemic Risks ◽  
The Impact

The aim of macroprudential policy is to ensure financial stability by avoiding the outbreak of banking crises, which have a dangerous effect on the economy. Is macroprudential policy effective in the face of banking crises and systemic risks? The macroprudential policy has received significant interest from policy-makers and researchers. A few developing countries were using macroprudential policy tools well before the 2008 financial crisis, but significant progress has been made thereafter in both emerging and industrialized economies to put in place specific institutional settings for macroprudential policy. The fundamental objective of macroprudential policy is to maintain the stability of the financial system by making it more resistant and preventing the risk build-up. The objective of this paper is to analyze the important role of macroprudential policy in ensuring overall financial stability. Since the financial crisis of 2008, macroprudential policy has been increasingly used across economies. These measures aim at smoothing financial cycles and thereby mitigating the impact on the real economy, thereby allowing monetary policy to focus on price stability and promote growth and full employment. Macroprudential policy instruments fall into two categories, depending on their purpose, namely, to prevent procyclicality or to enhance the resilience and soundness of the financial system against shocks. The first category of instruments is used to stop bubbles from forming and smooth cycles, i.e. to force the debt-equity of economic operators on an income basis to prevent unsustainable credit bubbles, or to require dynamic loss provisioning rules. The second category of macro-prudential policy is to improve the resilience to shocks, such as capital surcharges for systemic institutions or the requirement to hold liquid assets to cope with market panics, and to make the financial system less complex. Keywords: macroprudential policy, financial stability, tools and measures, systemic risks.

Macroprudential Policy - An Organizing Framework

Policy Papers ◽  
2011 ◽  
Vol 11 (17) ◽  
Author(s):  
Keyword(s):  
Systemic Risk ◽  
Financial Crises ◽  
Financial Stability ◽  
Macroprudential Policy ◽  
Macroeconomic Policies ◽  
Prudential Regulation ◽  
Clear Separation ◽  
The Past ◽  
Regulation And Supervision ◽  
Global Nature

Macroprudential policy is a complement to microprudential policy and it interacts with other types of public policy that have an impact on systemic financial stability. Indeed, prudential regulation, as carried out in the past, also had some macroprudential aspects, and the recent crisis has reinforced this focus; hence, a clear separation between “micro” and “macro” prudential, if useful conceptually, is difficult to delineate in practice. Moreover, no matter how different policy mandates are structured, financial stability tends to be a common responsibility, reflecting the far reaching consequences of financial crises. This calls for coordination across policies, to ensure that systemic risk is comprehensively addressed. Equally important, macroprudential policy is no substitute for sound policies more broadly, including, in particular, strong prudential regulation and supervision, and sound macroeconomic policies. Operational independence in other policy areas, including monetary and microprudential policy, should not be undermined in the name of macroprudential policy. Finally, given the global nature of the financial system, the multilateral aspects of macroprudential policy will need to be fully considered—an important aspect that is only touched upon in this paper.

Interactions and Coordination between Monetary and Macroprudential Policies

2021 ◽  
Vol 13 (1) ◽  
pp. 1-34
Author(s):  
Alejandro Van der Ghote
Keyword(s):  
Social Welfare ◽  
General Equilibrium ◽  
Financial Markets ◽  
Systemic Risk ◽  
Policy Instruments ◽  
Policy Intervention ◽  
Macroprudential Policy ◽  
Beneficial Effects ◽  
Macroprudential Policies ◽  
Policy Interventions

I study monetary and macroprudential policy intervention in a general equilibrium economy with recurrent boom-bust cycles. forward-looking variables to also react to policy intervention during phases in which the intervention is inactive. Macroprudential policies that contain systemic risk in financial markets during booms, therefore, relax market-based funding constraints during busts, which helps mitigate the severity and shorten the duration of economic meltdowns. Contractionary monetary interventions during booms also have (latent) beneficial effects during busts. Coordination between the two policy instruments improves social welfare over standard, Recurrence causes noncoordinated policy interventions, but improvement is moderate. (JEL E32, E44, E52, E61)

scholarly journals Macroprudential Policy and Financial Stability: The Turkish Case

2018 ◽  
Vol 10 (2) ◽  
pp. 34
Author(s):  
Ilyas Siklar ◽  
Aysegül Akça
Keyword(s):  
Financial Stability ◽  
Banking Sector ◽  
Foreign Currency ◽  
Banking System ◽  
Policy Instrument ◽  
Money Market ◽  
Estimation Model ◽  
Macroprudential Policy ◽  
Leverage Ratio ◽  
Macroprudential Policies

This study aims to analyse the relationship between financial stability and macroprudential policies in Turkey and investigate the effectiveness of macroprudential policies on the financial stability by using the vector error correction model (VECM). Estimates are realized for the 2010-2017 period by using the monthly data. For this purpose, a composite financial stability indicator (FSI) is formed and an estimation model is developed. Banking sector credit concentration, net position of interbank money market, leverage ratio, capital buffers, reserve requirements and foreign currency loan limits are used as macroprudential policy indicators. According the results obtained from VECM model, the ratios which represent concentration of credit and capital buffer provide a favourable contribution to financial stability while the variables representing the leverage ratio and the net position of banking system in interbank money market negatively affect the financial stability. The study concludes that monetary policy should be supported by macroprudential policy instrument to achieve financial stability.

scholarly journals MACROPRUDENTIAL REGULATION IN COUNTRIES OF CENTRAL AND EASTERN EUROPE: EXPERIENCE OF FINANCIAL IMBALANCES, PROACTIVITY OR PROTECTIVE REACTION

2018 ◽  
Vol Vol 17 (Vol 17, No 1 (2018)) ◽  
pp. 56-88
Author(s):  
Viktor Koziuk Koziuk
Keyword(s):  
Regression Analysis ◽  
Financial Stability ◽  
Driving Force ◽  
Central And Eastern Europe ◽  
Policy Instruments ◽  
Defense Reaction ◽  
Macroprudential Policy ◽  
Intensive Use ◽  
Structural Weakness ◽  
Protective Reaction

Is experience of financial imbalances driving intensity of macroprudential policy instruments use? Theoretically - yes, because they support to diminish conflict between price, exchange rate and financial stability. In the same time CEE countries demonstrate more complicated picture. Such countries experienced strong structural determined vulnerability to financial imbalances accumulation. The scale of correction of such imbalances also was tremendous. But empirical analysis doesn’t show that experience of imbalances is a driving force of more intensive use of macroprudential policy instruments. Results of regression analysis based on 18 CEE countries shows that such countries are likely to divide on two groups: those there macroprudential policy is complimenting active structural reforming, and those there such policy is looked like defense reaction on challenges related to general structural weakness.

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