Optimal Macroprudential Policy And Asset Price Bubbles

Author : Nina Biljanovska,Lucyna Gornicka,Alexandros Vardoulakis
Publisher : International Monetary Fund
Page : 51 pages
File Size : 46,5 Mb
Release : 2019-08-30
Category : Business & Economics
ISBN : 9781513512662

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Optimal Macroprudential Policy and Asset Price Bubbles by Nina Biljanovska,Lucyna Gornicka,Alexandros Vardoulakis Pdf

An asset bubble relaxes collateral constraints and increases borrowing by credit-constrained agents. At the same time, as the bubble deflates when constraints start binding, it amplifies downturns. We show analytically and quantitatively that the macroprudential policy should optimally respond to building asset price bubbles non-monotonically depending on the underlying level of indebtedness. If the level of debt is moderate, policy should accommodate the bubble to reduce the incidence of a binding collateral constraint. If debt is elevated, policy should lean against the bubble more aggressively to mitigate the pecuniary externalities from a deflating bubble when constraints bind.

Author : Douglas D. Evanoff,George G. Kaufman,A. G. Malliaris
Publisher : Oxford University Press
Page : 480 pages
File Size : 40,7 Mb
Release : 2012-02-08
Category : Business & Economics
ISBN : 9780199939404

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New Perspectives on Asset Price Bubbles by Douglas D. Evanoff,George G. Kaufman,A. G. Malliaris Pdf

This volume critically re-examines the profession's understanding of asset bubbles in light of the global financial crisis of 2007-09. It is well known that bubbles have occurred in the past, with the October 1929 crash as the most demonstrative example. However, the remarkably well-behaved performance of the US economy from 1945 to 2006, and, in particular during the Great Moderation period of 1984 to 2006, assured the economics profession and monetary policymakers that asset bubbles could be effectively managed with little or no real economic impact. The recent financial crisis has now triggered a debate about the emergence of a sequence of repeated bubbles in the Nasdaq market, housing market, credit market, and commodity markets. The realities of the crisis have intensified theoretical modeling, empirical methodologies, and debate on policy issues surrounding asset price bubbles and their potentially adverse economic impact if poorly managed. Taking a novel approach, the editors of this book present five classic papers that represent accepted thinking about asset bubbles prior to the financial crisis. They also include original papers challenging orthodox thinking and presenting new insights. A summary essay highlights the lessons learned and experiences gained since the crisis.

Author : G.G. Kaufman
Publisher : Elsevier
Page : 266 pages
File Size : 55,8 Mb
Release : 2001-12-13
Category : Business & Economics
ISBN : 0762308451

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Asset Price Bubbles by G.G. Kaufman Pdf

Asset price bubbles have been and continue to be an area of major public policy concern in many countries. While we know that the bursting of such bubbles is painful and destructive to the economy, little is known of their causes. This volume examines aspects of asset price bubbles from the perspective of different times and different countries.

Author : Andrew Joseph Filardo
Publisher : Unknown
Page : 46 pages
File Size : 52,7 Mb
Release : 2004
Category : Capital assets pricing model
ISBN : IND:30000094823949

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Monetary Policy and Asset Price Bubbles by Andrew Joseph Filardo Pdf

Author : International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 64 pages
File Size : 52,5 Mb
Release : 2013-10-06
Category : Business & Economics
ISBN : 9781498341714

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Key Aspects of Macroprudential Policy - Background Paper by International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Monetary and Capital Markets Department Pdf

The countercyclical capital buffer (CCB) was proposed by the Basel committee to increase the resilience of the banking sector to negative shocks. The interactions between banking sector losses and the real economy highlight the importance of building a capital buffer in periods when systemic risks are rising. Basel III introduces a framework for a time-varying capital buffer on top of the minimum capital requirement and another time-invariant buffer (the conservation buffer). The CCB aims to make banks more resilient against imbalances in credit markets and thereby enhance medium-term prospects of the economy—in good times when system-wide risks are growing, the regulators could impose the CCB which would help the banks to withstand losses in bad times.

Author : Bradley Jones
Publisher : International Monetary Fund
Page : 59 pages
File Size : 49,5 Mb
Release : 2015-02-11
Category : Business & Economics
ISBN : 9781475576207

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Asset Bubbles by Bradley Jones Pdf

In distilling a vast literature spanning the rational— irrational divide, this paper offers reflections on why asset bubbles continue to threaten economic stability despite financial markets becoming more informationally-efficient, more complete, and more heavily influenced by sophisticated (i.e. presumably rational) institutional investors. Candidate explanations for bubble persistence—such as limits to learning, frictional limits to arbitrage, and behavioral errors—seem unsatisfactory as they are inconsistent with the aforementioned trends impacting global capital markets. In lieu of the short-term nature of the asset owner—manager relationship, and the momentum bias inherent in financial benchmarks, I argue that the business risk of asset managers acts as strong motivation for institutional herding and ‘rational bubble-riding.’ Two key policy implications follow. First, procyclicality could intensify as institutional assets under management continue to grow. Second, remedial policies should extend beyond the standard suite of macroprudential and monetary measures to include time-invariant policies targeted at the cause (not just symptom) of the problem. Prominent among these should be reforms addressing principal-agent contract design and the implementation of financial benchmarks.

Author : International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 33 pages
File Size : 46,5 Mb
Release : 2011-03-14
Category : Business & Economics
ISBN : 9781498339179

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Macroprudential Policy - An Organizing Framework - Background Paper by International Monetary Fund. Monetary and Capital Markets Department Pdf

MCM conducted a survey in December 2010 to take stock of international experiences with financial stability and the evolving macroprudential policy framework. The survey was designed to seek information in three broad areas: the institutional setup for macroprudential policy, the analytical approach to systemic risk monitoring, and the macroprudential policy toolkit. The survey was sent to 63 countries and the European Central Bank (ECB), including all countries in the G-20 and those subject to mandatory Financial Sector Assessment Programs (FSAPs). The target list is designed to cover a broad range of jurisdictions in all regions, but more weight is given to economies that are systemically important (see Annex for details). The response rate is 80 percent. This note provides a summary of the survey’s main findings.

Author : Xavier Freixas,Luc Laeven,Jose-Luis Peydro
Publisher : MIT Press
Page : 487 pages
File Size : 48,7 Mb
Release : 2023-08-22
Category : Business & Economics
ISBN : 9780262549011

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Systemic Risk, Crises, and Macroprudential Regulation by Xavier Freixas,Luc Laeven,Jose-Luis Peydro Pdf

A framework for macroprudential regulation that defines systemic risk and macroprudential policy, describes macroprudential tools, and surveys the effectiveness of existing macroprudential regulation. The recent financial crisis has shattered all standard approaches to banking regulation. Regulators now recognize that banking regulation cannot be simply based on individual financial institutions' risks. Instead, systemic risk and macroprudential regulation have come to the forefront of the new regulatory paradigm. Yet our knowledge of these two core aspects of regulation is still limited and fragmented. This book offers a framework for understanding the reasons for the regulatory shift from a microprudential to a macroprudential approach to financial regulation. It defines systemic risk and macroprudential policy, cutting through the generalized confusion as to their meaning; contrasts macroprudential to microprudential approaches; discusses the interaction of macroprudential policy with macroeconomic policy (monetary policy in particular); and describes macroprudential tools and experiences with macroprudential regulation around the world. The book also considers the remaining challenges for establishing effective macroprudential policy and broader issues in regulatory reform. These include the optimal size and structure of the financial system, the multiplicity of regulatory bodies in the United States, the supervision of cross-border financial institutions, and the need for international cooperation on macroprudential policies.

Author : Stijn Claessens
Publisher : International Monetary Fund
Page : 38 pages
File Size : 46,9 Mb
Release : 2014-12-11
Category : Business & Economics
ISBN : 9781498340939

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An Overview of Macroprudential Policy Tools by Stijn Claessens Pdf

Macroprudential policies – caps on loan to value ratios, limits on credit growth and other balance sheets restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies – have become part of the policy paradigm in emerging markets and advanced countries alike. But knowledge is still limited on these tools. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They can also interact with various other policies, such as monetary and microprudential, raising coordination issues. Some countries, especially emerging markets, have used these tools and analyses suggest that some can reduce procyclicality and crisis risks. Yet, much remains to be studied, including tools’ costs ? by adversely affecting resource allocations; how to best adapt tools to country circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting tools.

Author : Mr.Jaromir Benes,Mr.Douglas Laxton,Mr.Joannes Mongardini
Publisher : International Monetary Fund
Page : 26 pages
File Size : 44,9 Mb
Release : 2016-04-12
Category : Business & Economics
ISBN : 9781484330494

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Mitigating the Deadly Embrace in Financial Cycles by Mr.Jaromir Benes,Mr.Douglas Laxton,Mr.Joannes Mongardini Pdf

This paper presents a new version of MAPMOD (Mark II) to study the effectiveness of macroprudential regulations. We extend the original model by explicitly modeling the housing market. We show how household demand for housing, house prices, and bank mortgages are intertwined in what we call a deadly embrace. Without macroprudential policies, this deadly embrace naturally leads to housing boom and bust cycles, which can be very costly for the economy, as shown by the Global Financial Crisis of 2008-09.

Author : International Monetary Fund
Publisher : International Monetary Fund
Page : 45 pages
File Size : 42,5 Mb
Release : 2014-06-11
Category : Business & Economics
ISBN : 9781498342629

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Staff Guidance Note on Macroprudential Policy by International Monetary Fund Pdf

This note provides guidance to facilitate the staff’s advice on macroprudential policy in Fund surveillance. It elaborates on the principles set out in the “Key Aspects of Macroprudential Policy,” taking into account the work of international standard setters as well as the evolving country experience with macroprudential policy. The main note is accompanied by supplements offering Detailed Guidance on Instruments and Considerations for Low Income Countries

Author : Jaromir Benes,Mr. Michael Kumhof,Mr. Douglas Laxton
Publisher : International Monetary Fund
Page : 59 pages
File Size : 46,8 Mb
Release : 2014-04-04
Category : Business & Economics
ISBN : 9781475524987

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Financial Crises in DSGE Models: A Prototype Model by Jaromir Benes,Mr. Michael Kumhof,Mr. Douglas Laxton Pdf

This paper presents the theoretical structure of MAPMOD, a new IMF model designed to study vulnerabilities associated with excessive credit expansions, and to support macroprudential policy analysis. In MAPMOD, bank loans create purchasing power that facilitates adjustments in the real economy. But excessively large and risky loans can impair balance sheets and sow the seeds of a financial crisis. Banks respond to losses through higher spreads and rapid credit cutbacks, with adverse effects for the real economy. These features allow the model to capture the basic facts of financial cycles. A companion paper studies the simulation properties of MAPMOD.

Author : Jaromir Benes,Mr. Michael Kumhof,Mr. Douglas Laxton
Publisher : International Monetary Fund
Page : 55 pages
File Size : 45,5 Mb
Release : 2014-04-04
Category : Business & Economics
ISBN : 9781475515206

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Financial Crises in DSGE Models: Selected Applications of MAPMOD by Jaromir Benes,Mr. Michael Kumhof,Mr. Douglas Laxton Pdf

This paper, together with a technical companion paper, presents MAPMOD, a new IMF model designed to study vulnerabilities associated with excessive credit expansions, and to support macroprudential policy analysis. In MAPMOD, bank loans create purchasing power that facilitates adjustments in the real economy. But excessively large and risky loans can impair balance sheets and sow the seeds of a financial crisis. Banks respond to losses through higher spreads and rapid credit cutbacks, with adverse effects for the real economy. These features allow the model to capture the basic facts of both the pre-crisis and crisis phases of financial cycles.

Author : William Quinn,John D. Turner
Publisher : Cambridge University Press
Page : 297 pages
File Size : 50,5 Mb
Release : 2020-08-06
Category : Business & Economics
ISBN : 9781108421256

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Boom and Bust by William Quinn,John D. Turner Pdf

Why do stock and housing markets sometimes experience amazing booms followed by massive busts and why is this happening more and more frequently? Boom and Bust reveals why bubbles happen, and why some bubbles have catastrophic economic, social and political consequences, whilst others have actually benefited society.

Author : Mr. Daniel C. Hardy,Philipp Hochreiter
Publisher : International Monetary Fund
Page : 24 pages
File Size : 45,6 Mb
Release : 2014-12-22
Category : Business & Economics
ISBN : 9781498359849

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A Simple Macroprudential Liquidity Buffer by Mr. Daniel C. Hardy,Philipp Hochreiter Pdf

A mechanism is proposed that aims to reduce the risk of a banking sector liquidity crisis—which is a quintessentially systemic event and thus the object of macroprudential policy—and moderate the effects of a crisis should one occur. The instrument would give banks more incentive to build up buffers of systemically liquid assets as a proportion of their total liabilities, yet these buffers would be usable in times of stress. The modalities of the instrument are considered with a view to making it effective, efficient, and robust.