Description:
The global financial crisis has focused
much attention on procyclicality, particularly in the
context of a macroprudential framework. This paper reviews a
set of prudential measures that can be adopted by national
authorities to deal with procyclicality and discusses issues
in designing and implementing such measures. For developing
countries, in addition to some general considerations on
policy design and implementation, a range of issues may
warrant special attention. These include the balance between
financial stability and financial development objectives,
selection and calibration of policy instruments according to
national circumstances and taking into account data
limitations and capacity constraints as well as other
practical challenges, and continued efforts to improve
supervisory independence, supervisory powers and analytical
capacity and to ensure adequate resources in order to
perform the required tasks. Given the limited practical
experience with countercyclical prudential measures,
developing countries (as well as developed countries) will
have to ascend a learning curve and experiment with select
instruments while carefully monitoring and evaluating their
effectiveness over time before a framework matures.