First, how should they identify when it is justified to intervene in the cycle? And second, if intervention is justified, which policy domain should act? Criteria for policy intervention A key criterion to identify the case for pre-emptive policy intervention is the presence of systemic negative externalities.
In the most general terms, such externalities arise whenever  1  See Claessens, S., M. Ayhan Kose and M. E. Terrones, “Financial cycles: What? How? When?”, IMF Working Paper, April 2011. 2  See Ranciere, R., A. Tornell and F. Westermann, “Systemic Crisis and Growth”, The Quarterly Journal of Economics, Volume 123, Issue 1, 2008, pp. 359–406.