I interviewed Jacob Frenkel, chairman and CEO of the G30 and former Bank of Israel governor, for Markit Magazine.
The full interview is available for free here, but I thought his thoughts on the limits of macroprudential tools in the face of low interest rates are worth noting.
“Let’s not kid ourselves,” [Dr Frenkel] says bluntly. “Interest rates are the most efficient instrument of monetary policy, period. If the use of the interest rate instrument is limited due to the zero bound constraint, can you still operate with macroprudential policies? The answer is probably ‘yes’ but it will be less efficient. In order to be effective you will need to use macroprudential measures in a draconian way.”