Macroprodential Policy under Uncertainty
by Saleem Bahaj and Angus Foulis
Bank of England and Centre for Macroeconomics
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)
Discussion by François Gourio