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Macroprudential supervision: from theory to policy

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According to the papers´ authors, an agreed framework for measuring and addressing financial imbalances is lacking. They propose a holistic approach for the financial system as a whole, and make policy proposals for the design of macroprudential instruments to simplify the current framework and make it more consistent.

ESRB working paper series, No 2
February 2016
Source: European Systemic Risk Board

Authors:
Dirk Schoenmaker, Rotterdam School of Management
Peter Wierts, De Nederlandsche Bank

>  Macroprudential supervision: from theory to policy

Abstract:

Financial supervision focuses on the aggregate (macroprudential) in addition to the individual (microprudential). But an agreed framework for measuring and addressing financial imbalances is lacking. We propose a holistic approach for the financial system as a whole, beyond banking. Building on our model of financial amplification, the financial cycle is the key variable for measuring financial imbalances. The cycle can be curbed by leverage restrictions that might vary across countries. We make concrete policy proposals for the design of macroprudential instruments to simplify the current framework and make it more consistent.

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