MACROPRUDENTIAL POLICY: IMPLEMENTATION, EFFECTS, AND LESSONS
In this paper I review the development of macroprudential policy (MPP) and, in. particular, its regulatory structure, its influence on the financial system, and its costsand benefits. I find that the effectiveness of MPP depends on the institutional setupin which it is implemented: often, MPP is under the responsibility of the centralbank, due to its independence, expertise and incentives to take action. However, thissetup may generate conflicts between MPP and traditional monetary policy. I alsodiscuss another issue undermining the effectiveness of MPP, namely, “leakages,” i.e.migrations of financial activity to institutions beyond the scope of application andenforcement of the MPP tool. Based on the Israeli experience of implementing MPP,I argue that coordination between the regulatory authorities supervising different sectors of the financial system is crucial for the successful implementation of MPP.
Keywords: Macroprudential policy, financial regulation, monetary policy, central banks,
housing market, LTV
JEL Classification: E52, E58, E61, E65, G21, G28