National balance sheets and macro policy: lessons from the past - speech by Paul Tucker

Speaking in London today, Paul Tucker discusses some lessons learned from the financial crisis about the appropriate macro policy framework, and in particular from the over-stretched and vulnerable balance sheets households, firms, banks and governments across the Western world had accumulated prior to the crisis.

Published on 28 February 2012

Paul Tucker highlights two possible international macroeconomic explanations for the period of pronounced credit growth and asset price appreciation prior to the crisis. “First, a fall in the world safe real rate, due to excess savings in the East. Second, increasing Global Liquidity, transmitted through expansive cross-border lending, kicked off by prolonged accommodative monetary policy.” Both of these, he notes, “…involve shifts in risk premia driven by changes in the supply and demand for financial assets.” He stresses that changes in risk premia can be key drivers of fluctuations in asset prices, and probably have substantial influence over macroeconomic fluctuations.

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