ABSTRACT
This chapter considers three broad themes: the relationship between credit growth, the housing market and the risk of financial instability; the purpose and role of macroprudential policy in curbing the growth of credit and protecting financial stability, and the main issues with macroprudential policy. Macroprudential policy comes in two main forms: narrow policies which seek to buttress the “resilience of the financial system” by building, for example, increased capital buffers, and more widely drawn policies which seek to damp down a rapid expansion of credit. The chapter focuses on a significant element, that it is important to broaden the view taken of macroprudential policy. The analysis of the causes is important since the effectiveness of macroprudential policies depend on the weight given to each of the suggested reasons. The macroprudential policymaker may seek both to control the rapid growth of credit and to limit the increase in the price of the asset being financed.
