Macroprudential Policy: The Need for a Coherent Policy Framework

Dirk Schoenmaker, Peter Wierts
2011 Social Science Research Network  
The recent literature on macroprudential policy contains several suggestions for possible instruments. This paper puts forward and implements a method for arriving at a coherent policy framework. It starts by defining the role of macroprudential policy in the overall policy framework for the monetary and financial system. It then specifies the objective, intermediate targets (pillars), instruments, decision-making, accountability, and the legal base. We introduce a two pillar strategy. The
more » ... presumption is that each instrument should be related to its intermediate target (pillar). This allows us to select a limited set of core instruments aimed at stabilising financial imbalances (pillar 1) and addressing externalities that arise from interconnections in the financial system (pillar 2).
doi:10.2139/ssrn.1876595 fatcat:jyk6xqshofhednm7kfo5vgiwny