Macroprudential policy: taking stock and looking forward

Speech by Gaston Gelos, Deputy Head, Monetary and Economic Department of the BIS, CEPR Paris Symposium, Paris, 8 December 2023.

A thorough stocktake of the evidence so far on the effects of macroprudential polices reveals that macroprudential tools are effective in reducing the build-up of vulnerabilities and strengthening resilience. A new, encompassing approach to assess effects evaluates the impact on GDP over time, showing that tightening macroprudential policy early in the financial cycle reduces GDP variability and tail risks. Since the undesired side effects of macroprudential tools are typically modest, these policies can often be used as a surgical tool to address specific vulnerabilities. However, leakages across sectors and countries highlight the need to expand the macroprudential perimeter and for international cooperation. The Covid crisis underscored the importance of having releasable bank capital buffers in place. Given existing vulnerabilities, maintaining a tight macroprudential stance is important at the current juncture.