Playing it safe: the macroeconomic consequences of macroprudential policy

The macroeconomic consequences of macroprudential policy

With history showing that recessions that follow financial crises are longer and more severe, a team of University of Melbourne economists are investigating the impact of governmental policies intended to maintain national stability in times of financial uncertainty.

After the recent global financial crisis, many countries introduced macroprudential policies, such as ceilings for new mortgages and higher debt-to-loan ratios, with the aim of reducing risk across the entire financial system and to prevent future crises.

This three-year Australian Research Council Linkage project investigates the macroeconomic consequences of such policies, with the aim of providing robust, empirically-based advice to policymakers about the best way to conduct macroprudential policies.

The researchers also plan to develop an estimated multi-sector small-open economy model with interactions between the financial sector and the rest of the macroeconomy, as well as create new methods to evaluate macroprudential policies.

Impact

This project is intended to provide policymakers with recommendations about how best to conduct macroprudential policies, as well to provide estimates of the likely macroeconomic impacts of implementing such policies.

In addition, the multi-sector model developed, as part of the research, will be used to quantify the impacts of other types of macroeconomic policies both in Australia and in other similar small-open economies.

Investigators

Professor Adrian Pagan, University of Sydney (Chief Investigator)

Jiao Wang, Research Fellow, University of Melbourne

Stephen Elias, PhD student, University of Melbourne

Xianglong Liu, PhD student, University of Melbourne