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Rules, Discretion, and Macro-Prudential Policy

Sunil Sharma () and Itai Agur ()

No 2013/065, IMF Working Papers from International Monetary Fund

Abstract: The paper examines the implementation of macro-prudential policy. Given the coordination, flow of information, analysis, and communication required, macro-prudential frameworks will have weaknesses that make it hard to implement policy. And dealing with the political economy is also likely to be challenging. But limiting discretion through the formulation of macro-prudential rules is complicated by the difficulties in detecting and measuring systemic risk. The paper suggests that oversight is best served by having a strong baseline regulatory regime on which a time-varying macro-prudential policy can be added as conditions warrant and permit.

Keywords: WP; central bank; bank regulator; regulator; bank; market; Macro-prudential policy; systemic risk; financial stability; regulation; input consist; markets regulator; market liquidity; liquid asset; repo market; central bank leadership; Liquidity; Systemic risk assessment; Commercial banks; Global (search for similar items in EconPapers)
Pages: 32
Date: 2013-03-08
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Handle: RePEc:imf:imfwpa:2013/065