The crisis has made it clear that a narrow focus on the soundness of individual banks can cause supervisors to overlook emerging threats to the stability of the entire financial system. Macroprudential policies are designed to smooth the financial cycle in both expansionary and contractionary phases, working counter-cyclically to prevent the emergence of systemic risks.
However, if their stability is made a direct objective of monetary policy, the stability of the domestic economy and of prices in general may be undermined. This is because land prices and exchange rates reflect certain factors which prices in general do not. Specifically, land prices incorporate changes in the productivity of land and in the expected rate of return.