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Macroprudential policy: case study from a tabletop exercise

Tobias Adrian (), Patrick de Fontnouvelle, Emily Yang and Andrei Zlate ()

No 742, Staff Reports from Federal Reserve Bank of New York

Abstract: Since the global financial crisis of 2007-09, policymakers and academics around the world have advocated the use of prudential tools for macroprudential purposes. This paper presents a macroprudential tabletop exercise that aimed at confronting Federal Reserve Bank presidents with a plausible, albeit hypothetical, macro-financial scenario that would lend itself to macroprudential considerations. In the tabletop exercise, the primary macroprudential objective was to reduce the likelihood and severity of possible future financial disruptions associated with the hypothetical overheating scenario. The scenario provided a path for key macroeconomic and financial variables, which were assumed to be observed through 2016:Q4, as well as the corresponding hypothetical projections for the interval from 2017:Q1 to 2018:Q4. Prudential tools under consideration included capital-based tools such as leverage ratios, countercyclical capital buffers, and sectoral capital requirements; liquidity-based tools such as liquidity coverage and net stable funding ratios; credit-based tools such as caps on loan-to-value ratios and margins; capital and liquidity stress testing; and supervisory guidance and moral suasion. In addition, participants were asked to consider using monetary policy tools for financial stability purposes. Under the hypothetical scenario, participants found many prudential tools less attractive owing to implementation lags and limited scope of application and favored those deemed to pose fewer implementation challenges, such as stress testing, margins on repo funding, and guidance. Also, monetary policy came more quickly to the fore as a financial stability tool than might have been thought before the exercise. The tabletop exercise abstracted from governance issues within the Federal Reserve System, focusing instead on economic mechanisms of alternative tools.

Keywords: macroprudential policy; tabletop exercise; financial overheating; monetary policy; financial stability (search for similar items in EconPapers)
JEL-codes: E58 G18 G01 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2015-09-01, Revised 2015-12-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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Journal Article: Macroprudential policy: a case study from a tabletop exercise (2017) Downloads
Working Paper: Macroprudential Policy: Case Study from a Tabletop Exercise (2015) Downloads
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