Claudia Buch: Macroprudential policy in a monetary union

Speech by Prof Claudia Buch, Vice-President of the Deutsche Bundesbank, at the SUERF conference "Monetary and economic policies on both sides of the Atlantic", Frankfurt am Main, 1 October 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
02 October 2019

Corresponding author: Claudia M. Buch, Deutsche Bundesbank, Postfach 10 06 02, 60006 Frankfurt, Germany. This text is based on joint work with Manuel Buchholz and Katharina Knoll, both Deutsche Bundesbank. An earlier version of this text has been prepared for the conference "High Public Debt: Theoretical and Historical Perspectives" held at Goethe University Frankfurt on May 17, 2019. We are grateful to Puriya Abbassi, Fabian Bichlmeier, Magnus Brechtken, Robert Düll, Albrecht Ritschl, and Edgar Vogel for most helpful inputs as well as to Janina Berner for excellent editorial assistance. The paper reflects the views of the authors and not necessarily those of the Deutsche Bundesbank. All errors and inconsistencies are our own.

1 Motivation

Central banks rely on and play a key role in ensuring the stability of the financial system. Yet, the definition of "financial stability" as an explicit policy objective and the assignment of a role for central banks has been a relatively recent development. Financial stability is defined as a situation in which the financial system neither contributes to a pronounced amplification of an economic downturn nor is a source of instability itself.

The specific tasks assigned to central banks have been evolving over time. According to the Bundesbank Law of 1957, the Bundesbank's mandate was rather broadly defined as to "safeguarding the currency". Forty years later, in the wake of the evolving European economic and monetary union, the Bundesbank's mandate became focused on "maintaining price stability". After the financial crisis, the Financial Stability Act of 2013 prominently provided for the Bundesbank to contribute to safeguarding financial stability.