Macroprodential Policy under Uncertainty
by Saleem Bahaj and Angus Foulis Bank of England and Centre for Macroeconomics
Abstract
We argue that uncertainty over the impact of macroprudential
policy need not make a policymaker more cautious. Our
starting point is the classic finding of Brainard that uncertainty
over the impact of a policy instrument will make a policymaker
less active. This result is challenged in a series of richer models
designed to take into account the more complex reality faced by
a macroprudential policymaker. We find that asymmetries in
policy objectives, the presence of unquantifiable sources of risk,
the ability to learn from policy, and private-sector uncertainty
over policy objectives can all lead to more active policy.
JEL Codes: D81, E58.
Full article (PDF, 36 pages, 535 kb)
Appendix
Discussion by François Gourio
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