Carney sets out ‘grand unifying theory’ of macro-pru
Loss function for financial stability echoes format of Taylor rule, but requires much more judgement
Mark Carney sought to lay out a “grand unifying theory” of macro-prudential policy in his last speech as governor of the Bank of England.
In remarks at University College London on March 5, Carney noted the success of the monetary policy framework, which is underpinned by a “loss function” based on the deviation of inflation from target and growth from potential, weighted according to policy-makers’ preferences – the Taylor rule.
Carney said it was possible to write out a loss function for
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