Macroprodential Policy under Uncertainty

Saleem Bahaj and Angus Foulis

International Journal of Central Banking, 2017, vol. 13, issue 3, 119-154

Abstract: We argue that uncertainty over the impact of macroprudential policy need not make a policymaker more cautious. Our starting point is the classic finding of Brainard that uncertainty over the impact of a policy instrument will make a policymaker less active. This result is challenged in a series of richer models designed to take into account the more complex reality faced by a macroprudential policymaker. We find that asymmetries in policy objectives, the presence of unquantifiable sources of risk, the ability to learn from policy, and private-sector uncertainty over policy objectives can all lead to more active policy.

Date: 2017
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Related works:
Working Paper: Macroprudential policy under uncertainty (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2017:q:3:a:4

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