The Macro-Micro Conflict

Crisis, financial policy was dominated by microprudential regulations, the implicit assumption being that a successful micro policy was sufficient to maintain the efficient operation of the financial system, just as a successful anti-inflation policy was all that was required from monetary policy.

The limitations of both approaches became very clear during the Crisis and since then, macro has been a major part of financial policy. However, while the ultimate objectives and implementation tools of macro and micro are closely aligned, their intermediate objectives are not, setting the scene for conflict.

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