Research Handbook of Macroprudential Policy

Edited by David Aikman, Director, the National Institute of Economic and Social Research, UK and Prasanna Gai, Professor of Economics, University of Auckland, New Zealand

‘Macroprudential policy is profoundly practical, borne out of the many financial crises in recent decades, but it is also a new field with rigorous modelling frameworks. This research volume gathers authors at the top of their game, shedding light on both. It is a must read for researchers and policymakers alike.’

• ContentsIntroduction to R�e�s�e�a�r�c�h� �H�a�n�d�b�o�o�k� �o�f� �M�a�c�r�o�p�r�u�d�e�n�t�i�a�l� �P�o�l�i�c�y� �D�a�v�i�d� �A�i�k�m�a�n� �a�n�d� �P�r�a�s�a�n�n�a� �G�a�i� �1PART I THE OBJECTIVES OF MACROPRUDENTIAL POLICY1 In search of a macroprudential loss function 8R�i�c�h�a�r�d� �B�a�r�w�e�l�l�2 Making banking safe 27S�t�e�p�h�e�n� �G�.� �C�e�c�c�h�e�t�t�i� �a�n�d� �K�e�r�m�i�t� �L�.� �S�c�h�o�e�n�h�o�l�t�z�PART II DEBT DYNAMICS AND FINANCIAL CRISES3 Aggregate debt servicing and the limit on private credit 54M�a�t�h�i�a�s� �D�r�e�h�m�a�n�n�,� �M�i�k�a�e�l� �J�u�s�e�l�i�u�s�,� �a�n�d� �S�a�r�a�h� �Q�u�i�n�c�y�4 The causes and consequences of high household indebtedness: evidence from Korea 81H�w�a�n�-�K�o�o� �K�a�n�g� �a�n�d� �K�y�e�o�n�g�t�a�e� �L�e�e�5 The role of debt in financial crises: lessons from the past 93P�e�d�r�o� �D�u�a�r�t�e� �N�e�v�e�s�PART III EXPERIENCE WITH MACROPRUDENTIAL TOOLS6 Has macroprudential policy been effective? How can we know? 113E�r�l�e�n�d� �W�.� �N�i�e�r�7 Housing and macroprudential policy 131J�o�h�n� �M�u�e�l�l�b�a�u�e�r�8 The effects of mortgage debt limits: lessons and questions from the Irish experience since 2015 178E�d�w�a�r�d� �G�a�f�f�n�e�y�,� �N�i�a�m�h� �H�a�l�l�i�s�s�e�y�,� �a�n�d� �F�e�r�g�a�l� �M�c�C�a�n�n�9 Macroprudential policy and capital flows 200M�a�r�g�a�r�e�t� �D�a�v�e�n�p�o�r�t�,� �F�i�l�i�p�a� �S�á,� �a�n�d� �T�o�m�a�s�z� �W�i�e�l�a�d�e�k�10 Distributional consequences of borrower-based macroprudential tools 220J�o�s�e�-�L�u�i�s� �P�e�y�d�r�ó,� �F�r�a�n�c�e�s�c� �R�o�d�r�i�g�u�e�z�-�T�o�u�s�,� �J�a�g�d�i�s�h� �T�r�i�p�a�t�h�y�,� �a�n�d� �A�r�z�u� �U�l�u�c�PART IV USEFUL MODELS11 Outlook-at-risk 242Nina Boyarchenko12 Multiple equilibria? Don’t panic! – a hitchhiker’s guide to global games 261Kartik Anand and Philipp J. König13 Stress testing tools: where we stand and where to go? 296Claudio Barbieri, Grzegorz Hałaj, and Christoffer Kok14 Towards a macroeconomic model of banking crises 318Daisuke Ikeda and Hidehiko Matsumoto15 Bank capital requirements and bank lending: from theory to empirics to policy 343Saleem Bahaj, Chiara Lattanzio, and Frederic MalherbePART V GOVERNANCE ARRANGEMENTS AND COORDINATION WITH OTHER MACROECONOMIC POLICIES16 Macroprudential governance: lessons from policies to mitigate housing market risks 369Ryan Banerjee and Philip Wooldridge17 Interaction of macroprudential and monetary policies: practice ahead of theory 384Thibaut Duprey, Yaz Terajima, and Jing YangPART VI SYSTEMIC RISK OUTSIDE THE BANKING SYSTEM18 Shadow banking 418Nathaniel Butler Blondel and Guillaume Plantin19 Macroprudential policy, monetary policy and non-bank financial intermediation 439Margherita Giuzio, Sujit Kapadia, Christoph Kaufmann, Manuela Storz, and Christian Weistroffer20 US life insurers and systemic risk 475Nathan Foley-Fisher, Nathan Heinrich, and Stéphane VeraniPART VII FRONTIER ISSUES21 Climate change, systemic risk, and macroprudential policy 500Paul Hiebert22 Climate risks in US housing and mortgage markets 514Toàn Phan23 Cryptocurrencies and decentralised finance: functions and financial stability implications 522Matteo Aquilina, Giulio Cornelli, Jon Frost, and Leonardo GambacortaIndex 546