The paper examines the implementation of macro-prudential policy. Given the coordination, flow of information, analysis, and communication required, macro-prudential frameworks will have weaknesses that make it hard to implement policy. And dealing with the political economy is also likely to be challenging. But limiting discretion through the formulation of macro-prudential rules is complicated by the difficulties in detecting and measuring systemic risk. The paper suggests that oversight is best served by having a strong baseline regulatory regime on which a time-varying macro-prudential policy can be added as conditions warrant and permit.The precision with which we can measure systemic risk affects the ability to calibrate and use macro-prudential tools, not the effectiveness of those tools. ... Hence, intermediate options may have to be considered. The Bank of England ( 2009) suggests using rules as a arough guidea and discretion when necessary, which Goodhart (2011) operationalizes as requiring the ... AcInternational Monetary Fund.
|Title||:||Rules, Discretion, and Macro-Prudential Policy|
|Author||:||Mr. Itai Agur, Mr. Sunil Sharma|
|Publisher||:||International Monetary Fund - 2013-03-08|