June 2014 issue contents
Financial Frictions and Macroprudential Policy

by Michal Brzoza-Brzezina
Narodowy Bank Polski and Warsaw School of Economics


Incorporating financial intermediaries, with their ability to generate shocks and frictions, into macroeconomic models has recently gained substantial attention of the profession. In this commentary I ask whether the models we generated are ripe to provide valuable, quantitative advice to policymakers, especially those interested in implementing and conducting macroprudential policy. I concentrate on three features of standard DSGE models that, in my view, still make them hard to digest for policymakers: goals of macroprudential policy, assumed terms of lending, and spillovers.

JEL Codes: E44, E51, E58.

Full article (PDF, 13 pages, 247 kb)