New institutions have been tasked with the implementation of macroprudential policies, and new policy instruments have been introduced. Nonetheless, uncertainty about the state of the financial system and the effects and effectiveness of these policy instruments is high. This uncertainty entails two risks: the risk of acting too late (inaction bias) and the risk of choosing an inappropriate instrument or inadequate calibration.
Both risks can be mitigated if macroprudential policy is embedded in a structured policy process. Such a policy process involves four steps. 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 all aim at reducing systemic risk arising from externalities for the functioning of the financial system.