Problemi Ekonomiki (Nov 2015)
Financial Imbalances and Macro-prudential Policies
Abstract
The credit crisis and its transformation into a sovereign debt crisis have illustrated the limited character of the traditional macro financial politics. The financial crisis has shown that the priority of price stability does not guarantee macroeconomic stability. Revision of the goals and objectives of the monetary and credit policy is being carried out in many countries. In order to ensure macroeconomic stability, central banks have to use new instruments considering financial stability as an additional object. Since 2009 the IMF recommends central banks to use macro-prudential instruments for reducing macro-financial risks and imbalances in the financial system structure. The effectiveness of macro-prudential policy depends on its calibration with the monetary and credit policy. The growth of financial imbalances in the first decade after the adoption of the euro, presence of contradictory fiscal policies, deployment of a spiral of rapid crediting and price inflation have led to apraxia in the monetary and credit policy, and fiscal policy was limited by institutional arrangements. Accumulating funds during the budget surplus the countries-members of the European Monetary System (EMS) attempted to reduce asymmetric shocks. The priority of price stability in the EMS had been achieved but the economies of these countries suffered from financial imbalances. Macro-prudential policy is aimed at prevention and mitigation of systemic risk, plays a significant role in reforming the new policy of central banks. That is why European countries are developing new methods and an institutional framework for the implementation of a new macro-prudential policy. Problems of structural arbitration and the possibility of emergence of new financial imbalances in the EMS are becoming increasingly real. The flow of financial capitals and financial institutions to more lenient jurisdictions is connected with the establishment of macro-prudential policy. The macro-prudential policy of central banks has been considered, financial imbalances of the EMS since 1999 have been analyzed, the main macro-prudential instruments have been described and EMS countries that had implemented these instruments have been considered. The efficiency of using the main macro-prudential instruments in the extrapolation at mitigating symptoms of systemic risk has been analyzed. The directions of the interaction between macro-prudential and monetary and credit policy in the EMU have been identified. The problem of macro-prudential migration, which may cause a new threat of financial asymmetry in the EMU has been considered.
