Macroprudential Policy: Taming the Wild Gyrations of Credit Flows, Debt Stocks and Asset Prices

Financial crises have plagued economies around the globe for centuries, yet no satisfactory policy solution has been found to significantly reduce the likelihood and severity of these devastating events. Macroprudential policy, the intellectual response to financial crisis, may provide the solution to this recurrent problem. However, what this means in practice is subject to disagreement - with radicals proposing measures to stablise the flow of credit to households and companies, and others suggesting a more conservative approach focused on the banks. Macroprudential Policy is the first book to provide a coherent and comprehensive coverage of the issues of why, when and how policymakers should intervene. Barwell brings his considerable experience of working in both a cenral bank and the financial sector to bear in examining the practical justification for the new regime, the institutions of macroprudential policy, the instruments at policymakers' disposal, and a discussion of how policymakers will go about discharging their responsibilities. The book also reviews the economic foundations of macroprudential policy. Conventional macroeconomics is based on assumptions that may work for the analysis of price stability and the conduct of monetary policy, but which more or less rules out the possibility of financial crises. This book introduces an alternative macroeconomics where crises can flourish, identifying the market failures which justify interventions to stabilize the system.

Table of Contents:
PART I: THE PRACTICE OF MACROPRUDENTIAL POLICY 1. Preliminaries 2. The Incalculable Costs of Financial Crises 3. Defining Financial Stability 4. Explaining the Failure to Act 5. A Whistle-stop Tour of the Microprudential Reform Agenda 6. The Design of Macroprudential Policy 7. Enter Macroprudential Policy 8. Resilience versus Credit Smoothing 9. A Cost Benefit Analysis of Macroprudential Policy 10. Managing the Contradictions 11. The Institutions of Macroprudential Policy 12. Macroprudential Policy in the United Kingdom 13. It ain't what you do, it's the reason you do it 14. The European Dimension 15. The Global Macroprudential Agenda 16. The Instruments of Macroprudential Policy 17. The Transmission of Policy 18. Capital Surcharges 19. Contingent Capital 20. Regulating the Liquidity Cycle 21. Lender of Last Resort 22. Market Maker of Last Resort 23. The Conduct of Macroprudential Policy 24. Canaries in the Coalmine 25. Macroprudential Policy from 30,000 Feet 26. The Sherlock Holmes Approach to Macroprudential Policy 27. Systemic Stress Tests 28. Macroprudential Regulation of the SIFIs PART II: THE THEORY OF MACROPRUDENTIAL POLICY 29. The Conventional Wisdom 30. Meet the Conventional Wisdom 31. The Key Pillars of the Classical Edifice 32. Walrasian Auctioneers: Nothing Worth Shouting About 33. The Representative Agent Assumption 34. The Irrelevance of Capital Structure 35. An Unstable System 36. The Mavericks 37. Following the Herd 38. Introducing Institutions 39. Credit Balance Sheets and Asset Prices 40. The Family Tree of Financial Crises 41. The Hysteresis Loop 42. The Liquidity Cycle 43. Final Thoughts 44. Are Financial Markets Worth the Heartache 45. The Way Ahead

About the Author :
Richard Barwell is currently senior European Economist at RBS Markets; previously he was a senior economist at the Bank of England, working on issues of both monetary and financial stability. However, the opinions and analysis presented in this book represent his personal views and his alone, not those of his current or former employer.