Building on incomplete foundations: financial stability policy since the crash

Publication date: 2 Aug 2017 | Publication type: National Institute Economic Review | Theme: Macroeconomics | External Author(s): Barwell, R | JEL Classification: D78, E58, E61, G18 | Journal: National Institute Economic Review Issue 241 | Publisher: Sage Publications, London

Economists understand that a fit for purpose policy regime requires a reliable general equilibrium model of the system in question and a well specified description of the objectives that the policymaker is trying to pursue. The current financial stability regime has neither and without these critical foundations the regime is fundamentally fragile and incomplete. There is no anchor on the conduct of policy, an absence in genuine accountability and, as a result, reputational risks for policy institutions.

Keyword tags: 
financial stability
financial crises
macroprudential policy
loss function

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