In search of a macroprudential loss function

Richard Barwell

Chapter 1 in Research Handbook of Macroprudential Policy, 2026, pp 8-26 from Edward Elgar Publishing

Abstract: There is no loss function for macroprudential policy and no fit-for-policy-purpose model that describes the financial system to manage. Nor is there agreement on high-level objectives: on how far the stability agenda extends beyond resilience of the financial system towards credit smoothing, or how much stability is required. Likewise, the allocative and distributive consequences of macroprudential policy remain under-explored. The absence of these conceptual foundations did not prevent the first cohort of macroprudential policymakers from taking decisions after the crisis because they knew they had to build resilience without acting like “resilience nutters”. Now that task is complete, the case for building these foundations is compelling. Reaching a consensus on the algebra of the loss function will take decades. Progress towards that goal will help anchor the policy debate and enhance accountability.

Keywords: Macroprudential; Loss function; Growth at risk; Framework hysteresis (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035306206
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