Macroprudential policies are being developed to supplement microprudential instruments, causing coordination issues between macroprudential and macroeconomic policies, most notably monetary policy. With a new objective – financial stability – and a new instrument - macroprudential policy – the question of optimal assignment is critical, and institutional arrangements become important. 

At this seminar, two papers will be presented. The papers argue that the optimal assignment of policies to objectives may be different in a post-crisis environment from that in normal times, and different under a fixed exchange rate regime, especially a currency union, from that in a floating exchange rate regime. In addition, they warn about inherent limitations in the effectiveness of macroprudential measures, seen in isolation and from a cyclical perspective. The authors make specific proposals to deal with these issues.

In cooperation with Chatham House.