Policy frameworks anticipating only “ordinary” shocks within usual economic cycles may not be very effective in mitigating the impact of such tail events when they actually materialize. The recent financial crisis in particular has forced policymakers to review their own policy frameworks and to examine how they could identify tail risks and deal with tail events.
Nonetheless, at this juncture we do not have fully reliable indicators for detecting tail risks nor panaceas against the maladies that accompany these tail events. We have to bear in mind that, no matter how intellectually-inspiring policy makers may find this new tool, macro-prudential policy can never be a substitute for appropriate macroeconomic policy or for effective financial supervision.