G20 and Macroprudential Policy

Publication: Policy Letter No. 3, 2010
Topic Area: Macro Finance
Authors: Stefan Gerlach
Date: Apr 2010
Keywords: G20, macroprudential policy, financial stability

At the upcoming G20 meetings the issue what can be done to avoid a repetition of the current deep financial crisis will again be debated. Much attention and criticism will be directed to central banks. That is unavoidable: central banks must never again permit the development of financial imbalances that are large enough to lead to the collapse of major parts of the financial system when they unwind. In the future, policy makers must “lean against the wind” and tighten financial conditions if they perceive that imbalances are forming, even if there is little hard data to rely on. And they must be mindful that the costs of acting too late can dwarf those of acting too early.

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