Ingves: Challenges for the design and conduct of macroprudential policy
He first considered the need for macroprudential policy. Despite the relatively strong recovery of the Swedish economy for the recent financial crisis, there are a number of potential vulnerabilities in the Swedish financial system. In particular, the growth of house prices and household debt is considered to be unsustainable. And there are growing vulnerabilities internationally, as illustrated by the sovereign debt crisis in Europe.
Governance arrangements for the macroprudential policy framework were then discussed. It was argued that effective arrangement will ensure that the macroprudential decision-maker has: (i) a clear mandate; (ii) access to the necessary information and the analytical capability to set policy; and (iii) control over a sufficient set of tools to achieve its mandate.
Finally, he also highlighted a couple of approaches to modelling the interaction of macroprudential policy and monetary policy, but these are not yet sufficiently developed to produce anything that is practically applicable. So there are likely to be a number of open questions / uncertainties when macroprudential policy becomes active. Fortunately that is nothing new for policymakers.
“That said, this is an exciting and, I believe, potentially very fruitful area for research in the future. And it is encouraging to see prominent researchers becoming increasingly interested in issues related to financial stability. I am therefore hopeful that there will be mutually beneficial cooperation between academics and policy-makers in the future.”
Read the speech in full in the PDF below.
