Macroprudential Policy: A Blessing or a Curse?

40 Pages Posted: 20 May 2016 Last revised: 8 Jun 2016

See all articles by Lilit Popoyan

Lilit Popoyan

Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM)

Date Written: May 16, 2016


After the destructive impact of the global financial crisis of 2008, many believe that pre-crisis financial market regulation did not take the “big picture” of the system sufficiently into account and, subsequently, financial supervision mainly “missed the forest for the trees”. As a result, the need for macroprudential aspects of regulation emerged, which has recently become the focal point of many policy debates. This has also led to intense discussion on the contours of monetary policy after the post-crisis “new normal”. Here, I review recent progress in empirical and theoretical research on the effectiveness of macroprudential tools, as well as the current state of the debate, in order to extract common policy conclusions. The work highlights that, despite the achievements in the literature, the current experience and knowledge of how macroprudential instruments work, their calibration, and the mechanisms through which they interact with each other and with monetary policy are rather limited and conflicting. Moreover, I critically survey and note the current challenges faced by macroprudential regulation in creating stable, yet efficient financial systems. At the same time, I emphasize the importance of accepting that many risks may remain, requiring that we proceed prudently and develop better plans for future crises.

Keywords: macroprudential policy, Basel III regulation, capital adequacy ratio, countercyclical capital buffer, leverage requirement, systemic risk, crisis management, financial stability

JEL Classification: E02, E32, E52, E58, E6, G01, G21, G28

Suggested Citation

Popoyan, Lilit, Macroprudential Policy: A Blessing or a Curse? (May 16, 2016). Available at SSRN: or

Lilit Popoyan (Contact Author)

Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri Della Liberta 33
Pisa, Pisa 56127

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