Macroeconomic policy

Björn Richter, Moritz Schularick, Ilhyock Shim, 21 September 2018

Central banks have increasingly relied on macroprudential measures to manage the financial cycle, but their effects on the core objectives of monetary policy to stabilise output and inflation are largely unknown. This column shows that the output costs of changes in maximum loan-to-value ratios are rather small, especially in advanced economies. At the same time, such policies successfully reduce household and mortgage credit growth. The results suggest that central banks could be in a position to use macroprudential instruments to manage financial booms without interfering with the core objectives of monetary policy in a major way. 

John D. Burger, Francis Warnock, Veronica Cacdac Warnock, 19 September 2018

A large share of Turkey’s bonds are denominated in foreign currencies, and the Turkish lira has depreciated. This recalls the currency mismatches that contributed to many crises in the 1990s. The column argues that many emerging economies like Turkey's are better able to avoid these crises thanks to improved policies, such as inflation targeting, that have helped foster local currency bond markets. Emerging markets policymakers must not backslide on this progress if they want to maintain financial stability.

Eugenio Cerutti, Stijn Claessens, Luc Laeven, 18 September 2018

The Global Crisis was a catalyst for the adoption of macroprudential policies around the world. Using newly updated data, this column examines the adoption of macroprudential policy instruments from 2000 to 2017. Since 2015, advanced economies have on average been using more instruments than emerging economies and low-income countries. While some instruments seem to be effective, it remains to be seen whether this suite of policies can deliver overall financial stability.

Roger Farmer, 17 September 2018

Originally published in February 2009, this column proposes a new paradigm to reconcile Keynesian economics with general equilibrium theory. It suggests that, just as it sets the fed funds rate to control inflation, the Fed should set a stock market index to control unemployment. This would not let every manufacturing firm and every bank fail at the same time “as a result of speculative movements in markets that serve no social purpose.”

Barry Eichengreen, Richard Baldwin, 14 September 2018

Original teaser from the column posted on 9 October 2008: Without rapid and coordinated action by G7/8 leaders, this financial crisis could turn into a jobs crisis, a pension crisis and much more. This column introduces a collection of essays by leading economists on what the G7/8 leaders should do this weekend. The dozen essays present a remarkable consensus on a few points: we need immediate, coordinated global action that includes recapitalisation of the banks.

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