How can we identify risks to macrostability?

Abstract

The events of recent years have shown how weak the management of systemic risk in the global economy really is. In addition to prudential supervision of individual institutions and market participants, what is desperately needed are policies that address the stability of the system as a whole. The definition and supervision of macrostability have rapidly emerged as one of the key areas of policy development for the future. This work is, however, in its infancy, and the necessary concepts have not yet become firmly established.1 In this article we consider the principles that should underpin the prudential supervision of macroeconomic imbalances and macrostability so that in future we can identify crises early enough to be able to minimise their spread.