Disclaimer: The views expressed herein are those of the authors and should not be attributed to the IMF, its Executive Board, or its management.The great moderation lulled macroeconomists and policymakers alike in the belief that we knew how to conduct macroeconomic policy. The crisis clearly forces us to question that assessment. In this paper, we review the main elements of the pre-crisis consensus, we identify where we were wrong and what tenets of the pre-crisis framework still hold, and take a tentative first pass at the contours of a new macroeconomic policy framework. JEL Classification Numbers: E44, E52, E58, G38, H50

This paper links the U.S. subprime mortgage crisis to demand‐side factors that contributed to the rapid expansion of the U.S. mortgage market. We show that denial rates were relatively lower in areas that experienced faster credit demand growth and that lenders in these high‐growth areas attached less weight to applicants’ loan‐to‐income ratios. The results are robust to controlling for supply‐side factors, including house price appreciation, mortgage securitization, and other economic fundamentals, and to several robustness tests controlling for endogeneity. The results are consistent with the notion that a relaxation of lending standards, triggered by an increased demand for loans, contributed to the boom and the ensuing crisis, together with other supply‐side explanations. These findings shed new light on the relationship between credit booms and financial instability.

We examine how the informational structure of loan markets interacts with banks' strategic behavior in determining lending standards, lending volume, and the aggregate allocation of credit. We show that, as banks obtain private information about borrowers and information asymmetries across banks decrease, banks may loosen their lending standards, leading to an equilibrium with deteriorated bank portfolios, lower profits, and expanded aggregate credit. These lower standards are associated with greater aggregate surplus and greater risk of financial instability. We therefore provide an explanation for the sequence of financial liberalization, lending booms, and banking crises observed in many emerging markets. Copyright 2006 by The American Finance Association.

The financial crisis showed, once again, that neglecting real estate booms can have disastrous consequences. In this paper, we spell out the circumstances under which a more active policy agenda on this front would be justified. Then, we offer tentative insights on the pros and cons as well as implementation challenges of various policy tools that can be used to contain the damage to the financial system and the economy from real estate boom-bust episodes.

Following a period of privatization and restructuring, commercial banks in Central and Eastern Europe and, more recently, in the Balkans have expanded rapidly their lending to the private sector. This paper studies whether these developments are consistent with a process of convergence and structural financial deepening by estimating an ''equilibrium'' level of the bank-credit-to-GDP ratio. It concluded that while there is no clear evidence that the recent increases in bank credit ratios is inconsistent with financial deepening, policy-makers will have to evaluate carefully its implications for macroeconomic developments and financial stability. Ó 2004 Published by Elsevier B.V.

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The great moderation lulled macroeconomists and policymakers alike in the belief that we knew how to conduct macroeconomic policy. The crisis clearly forces us to question that assessment. In this paper, we review the main elements of the precrisis consensus, identify where we were wrong and what tenets of the precrisis framework still hold, and take a tentative first pass at the contours of a new macroeconomic policy framework. Copyright (c) 2010 The Ohio State University. The International Monetary Fund retains copyright and all other rights in the manuscript of this article as submitted for publication.