Central Banks, Financial Regulators, and the Quest for Financial Stability: 2011 IMF Annual Research Conference

The global financial crisis gave economists pause for thought about what should be the future of macroeconomic policy. We have devoted much of our thinking to this issue these past three years, including how the many policy instruments work together. The interactions between monetary and macroprudential policies, in particular, remain hotly debated. This topic goes to the core of central banks’ mandates, and their role in achieving macroeconomic and financial stability. While the financial crisis triggered a fundamental rethinking of these issues, much research—both conceptual and empirical—remains to be done. I hope this year’s IMF Annual Research Conference will contribute to expanding the frontier of knowledge on this topic.

Macroprudential Policy—Filling the Black Hole

When the global financial system was thrown into crisis, many policymakers were shocked to discover a gaping hole in their policy toolkit. They have since made significant progress in developing macroprudential policy measures aimed at containing system-wide risks in the financial sector. Yet progress has been uneven. Greater efforts are needed to transform this policy patchwork into an effective crisis prevention toolkit. Given the enormous economic and human cost of the recent financial debacle, we cannot afford to miss this opportunity for substantial reform. We need further collective efforts to fill the policy black hole. It is our best chance of avoiding future crises.

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