Objective-setting and communication of macroprudential policies
Report submitted by a Study Group established by the Committee on the Global Financial System. The Group was chaired by Cecilia Skingsley (Sveriges Riksbank).
Macroprudential policy faces a range of challenges that stem from the difficulty to quantify its principal objective, financial stability, and from the absence of an established analytical paradigm to guide its conduct. These challenges are particularly relevant when appraising policy (see CGFS Publications, no 56) and, as discussed here, when setting objectives and communicating policy.
This report argues that adopting a systematic policy framework that channels policymaking through a set of predictable procedures can help address these challenges. A key element of an effective policy framework is a communication strategy that clearly explains how macroprudential actions can contribute to achieving financial stability. The report provides an overview of how objectives are set in macroprudential policy and how policy is communicated in practice. The main part of the report discusses the role that communication can play in macroprudential policy, both in terms of helping to anchor stakeholders' expectations but also in influencing stakeholders' behaviour. One of the report's messages is that perhaps more than in other policy areas, a greater effort is required to explain the macroprudential policy framework and to ensure that the goal of maintaining financial stability is valued by the wider public. Such an appreciation facilitates policy actions early on in the cycle, when instruments may be more effective and adjustment less costly.
JEL classification: D83, E58, E60, G01, G28
Keywords: financial stability, policy frameworks, regulation