In a new discussion paper titled “Objectives and Challenges of Macroprudential Policy” (University of Glasgow Economics Discussion Paper 2016-02, available here), Professor Charles Nolan and I discuss recent developments in the institutional frameworks of central banks. In the wake of the Global Financial Crisis, central banks have taken on wider “macroprudential” regulatory roles and responsibilities including but not limited to direct restrictions on mortgage lending.
The paper describes a link between the recent introduction of macroprudential policy regulations and seemingly counteractive tax policies. In the UK and in other countries, mortgage lending subsidies have been increased at the same time as mortgage lending restrictions have been imposed. We argue that the nature of this conflict between the treasury and the macroprudential policy authority is fundamentally different than those emerging under the standard operation of monetary policy by central banks. Consequently, it is necessary to consider the joint design of macroprudential institutions and macroprudential policies.