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Working Paper

Macroprudential Policy: Results from a Tabletop Exercise

This paper presents a tabletop exercise designed to analyze macroprudential policy. Several senior Federal Reserve officials were presented with a hypothetical economy as of 2020: Q2 in which commercial real estate and nonfinancial debt valuations were very high. After analyzing the economy and discussing the use of monetary and macroprudential policy tools, participants were then presented with a hypothetical negative shock to commercial real estate valuations that occurred in the second half of 2020. Participants then discussed the use of the tools during an incipient downturn. Some of the findings of the exercise were that during an asset boom, there were limits to the effectiveness of US macroprudential tools in controlling narrow risks and that changes to the fed funds rate may not always simultaneously meet macroeconomic and financial stability goals. Some other findings were that during a downturn, it would be desirable to use high-frequency indicators for deciding when to release the countercyclical capital buffer (CCyB) and that tensions exist between microprudential and macroprudential goals when using the CCyB and the stress test.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Duffy, Denise, Joseph G. Haubrich, Anna Kovner, Alex Musatov, Edward S. Prescott, Richard J. Rosen, Thomas D. Tallarini Jr., Alexandros P. Vardoulakis, Emily Yang, and Andrei Zlate. 2019. “Macroprudential Policy: Results from a Tabletop Exercise.” Federal Reserve Bank of Cleveland, Working Paper No. 19-11. https://doi.org/10.26509/frbc-wp-201911