Financial Stability & Macroprudential Policy
8 important questions on Financial Stability & Macroprudential Policy
What are the main conflicts addressed in financial stability and macroprudential policy?
- Price stability vs financial stability.
- OCR controls inflation, which can exacerbate:
- Debt problems
- - Higher mortgage stress
How does New Zealand's banking system operate regarding reserves?
- A floor system where banks maintain ample reserves.
- Interest rates remain aligned with the:
What is the nature of the OCR in relation to the economy?
- Powerful but blunt, influencing the entire economy.
- Its impact is not limited to specific, risky sectors like:
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How do macroprudential tools differ from OCR in their effectiveness?
- More targeted, affecting specific sectors directly.
- Examples include:
- LVRs (Loan-to-value ratios)
- - DTIs (Debt-to-income ratios)
- - Capital buffers
What is the "credit channel wedge" in macroprudential policy?
1. Macro tools altering the:
- Borrowing ease or costs for individuals and firms.
2. This shift impacts:
- Demand in specific markets.
What trade-off do policymakers face in economic management?
1. Best tools for inflation:
- OCR effectiveness
2. Better tools for financial stability:
- Prudential measures
How do projects incorporate assumptions about OCR and prudential tools?
1. The assumption that OCR anchors the:
- LM curve.
2. They demonstrate how:
- Prudential tools shift the IS curve for sectors like:
- - Housing or SMEs (Small and Medium Enterprises).
What is the overall conclusion regarding the relationship between OCR and macroprudential policies?
- OCR sets economy-wide money prices, but is a blunt tool.
- Macroprudential policies allow central banks to:
- Target risks precisely, balancing:
- - Inflation goals with financial stability.
The question on the page originate from the summary of the following study material:
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