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.
Japan’s experience of its bubble economy is a good example. Japan learned just how difficult it is to control asset prices solely with macroprudential tools such as an administrative ceiling on bank loans to the real estate sector.13 Thus, in detecting tail risks and tackling tail events, we have to avoid any complacency or false sense of security in our macro-prudential policy framework.