Macroprudential policy under uncertainty

Saleem Bahaj and Angus Foulis

No 584, Bank of England working papers from Bank of England

Abstract: We argue that the uncertainty over the impact of macroprudential policy need not make a policymaker more cautious. Our starting point is the classic result of Brainard (1967) which finds 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 the presence of unquantifiable sources of risk, potential asymmetries in policy objectives, the ability to learn from policy actions, and private sector uncertainty over policy objectives can all lead to more active policy in the face of uncertainty.

Keywords: Macroprudential policy; robust control; Linex; uncertainty (search for similar items in EconPapers)
JEL-codes: D81 E58 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2016-01-29
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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Related works:
Journal Article: Macroprodential Policy under Uncertainty (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0584

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