Professor of Economics at London Business School Helene Rey on Friday said macroprudential authorities — monetary authorities or central banks which monitor the financial system — should be “independent” but in return for their independence, should be “accountable to elected bodies”.
Rey also made it clear that macroprudential policies should have legislative backing and public accountability. “Their mandate on financial stability should be as transparent as possible and well explained to the parliament and general public. This involves pointing out to the citizens, the very large costs of financial crises,” Rey said while delivering the 16th LK Jha Memorial Lecture in Mumbai.
According to Rey, a macroeconomist of international repute, even though a global financial cycle may evolve independently of a country’s specific macroeconomic conditions, it often leads to large asset-price bubbles and excess credit creation, necessitating domestic policy response to stabilising the economy.
“In essence, domestic macroeconomic policies are rendered subservient to the global financial developments,” she said.