(2) choosing intermediate objectives and appropriate indicators, (3) linking instruments to indicators through ex ante impact assessments, and (4) analysing policy effects through ex post evaluations. In a first step, the policy objective(s) of macroprudential policy need to be specified. Macroprudential authorities use different definitions of the policy objective, but they all aim at reducing systemic risk arising from externalities.
Ideally, the policy objective is derived from an analytical framework which links performance of the financial system to the functioning of the real economy. In a second step, intermediate objectives need to be specified and appropriate indicators chosen. Intermediate objectives are linked to the drivers of systemic risk, such as leverage, risk-taking incentives, interconnectedness, or exposure to common shocks.