I know it is heretical to even suggest it, but is it possible, just possible that MacroPru could be procyclical?
The question came up in a conference recently, where I was presenting on the nature of risk and after showing my 42 year MacroPru cycle plot, suggested MacroPru might just be procyclical.
After my talk, a policymaker came up to me and said that could not be possibly true.
So, where are the arguments?
The orthodox view might say that by measuring cycles in risk-taking and implementing MacroPru policies that counteract those cycles, MacroPru is countercyclical by definition.
So what could possibly make it go the other way? There are at least two factors:
So, it is entirely conceivable that MacroPru is procyclical, just depends on how it is implemented.