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Macroprudentialism: The Governance Challenges

Exploring the complexities of macroprudentialism in finance, analyzing the interaction between monetary, macroprudential, and microprudential policies. Discusses governance principles and real-world implications in ensuring financial stability amidst systemic risks.

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Macroprudentialism: The Governance Challenges

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  1. Macroprudentialism:The Governance Challenges Donato Masciandaro

  2. Macroprudentialism: What Do We Know • One Industry (Finance) Two + One Economic Policies: • Traditional Policies: Monetary Policy (MP) and Microprudentialism (MICROPRU) • Monetary Policy: Monetary Stability, MP tools (interest rates and quantitative operations) and MP strategy (mix rules/discretion) • Microprudentialism: Banking Stability, MICROPRU tools (capital ratios) and MICRO strategy (mix rules/discretion) • Which Institutions? Two Stages …

  3. Traditional View: Two Policies, One Player

  4. Modern View (Before the Crisis): Two Policies, Two Players

  5. Modern View (Before the Crisis): Two Policies, Two Players

  6. Post Modern View (After the Crisis): The Great Reversal

  7. Macroprudentialism: What Do We Know • New Toolkit in Macroeconomics: Macroprudentialism (MACROPRU) • One Goal: Financial Stability (Systemic Risk) • One Toolkit (LTV ratios, countercyclical buffers) • One Specific Strategy: Mix Rules/Discretion

  8. Macroprudentialism: What Do We Not Know • The interactions between MP, MACROPRU and MICROPRU, can be: • A) positive and/or negative, driven by • B) economics and political economy, and characterized by • C) exogenous and endogenous shocks • Therefore, which institutional setting?

  9. Macroprudentialism: Governance Principles • Four Principles: • 1) Three Goals, Three Players • 2) Three Players, One Information Set • 3) For Each Player: Same Levels of Independence and Accountability • 4) Rules of the Games on Interactions: • a) Normal Times: Nash Equilibria • b) Extraordinary Times (Goal Conflicts): Political device to decides the Goal Hierarchy

  10. Macroprudentialism: Governance in the Real World • Governance = political drivers • Who is the Macro Supervisor (Masciandaro and Volpicella 2014, 31 countries)? • 1) No autonomous players, just committees • 2) Dominant Player: It is likely to be the Central Banker , the more he/she is also the Micro Supervisor (information gains) and … • 3) the more he/she is Dependent (avoiding too powerful bureaucracies)

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