Macroprudential theory: advances and challenges

Henrique Basso and James Costain

No 1604, Occasional Papers from Banco de España

Abstract: This note discusses recent theoretical work analyzing the causes of financial instability, its consequences for the macroeconomy, and thus the potential role for macroprudential policy. After discussing how information asymmetries and strategic complementarities can cause balance sheet losses to propagate through the financial system and over time, we discuss the role of the major classes of macroprudential instruments in preventing instability ex ante and containing it ex post. We conclude with a discussion of current challenges for macroeconomic modeling and for the design of regulation and policy.

Keywords: banks; financial stability; financial regulation; macroeconomic policy. (search for similar items in EconPapers)
JEL-codes: E44 E6 G2 G28 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2016-03
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:1604

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