Abstract
Macroprudential policymakers are the risk managers of the financial system. Their role is to ensure that the probability and severity of a crisis is at a level which is consistent with the preferences of the citizens they serve. To fulfil this role successfully, the authorities require a framework consisting of a measurable goal, a set of tools, and a model linking the two. In the familiar case of monetary policy, the analysis of general economic and financial conditions, seen through a lens combining theoretical and empirical models with an agreed-upon objective, produces prescriptions for setting interest rates and adjusting the size and composition of central banks’ balance sheets. Typically, a comprehensive framework delivers both a positive and a normative assessment of a policy stance. It allows policymakers and outside observers to evaluate whether the current settings are either too accommodative or too restrictive, both with regard to historical or theoretical norms and to levels which are considered appropriate to meet mandated goals.