publications feature a motif taken from the €50 banknote. NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily refl ect those of the ECB. Macroprudential Research Network This paper presents research conducted within the Macroprudential Research Network (MaRs). The network is composed of economists from the European System of Central Banks (ESCB), i.e. the 27 national central banks of the European Union (EU) and the European Central Bank. The objective of MaRs is to develop core conceptual frameworks, models and/or tools supporting macro-prudential supervision in the EU. The research is carried out in three work streams: 1. Macro-financial models linking financial stability and the performance of the economy; 2. Early warning systems and systemic risk indicators; 3. Assessing contagion risks.

Logical frameworks and meta-languages form a common substrate for representing, implementing, and reasoning about a wide variety of deductive systems of interest in logic and computer science. Their design and implementation has been the focus of considerable research over the last two decades, using competing and sometimes incompatible basic principles. This workshop brings together designers, implementors, and practitioners to discuss all aspects of logical frameworks. The papers in this workshop proceedings were selected but not formally refereed by the following program committee.

coincident indicators and early warning signals∗

In 2013 all ECB publications feature a motif taken from the €5 banknote. NOTE: This Occasional Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. This paper can be downloaded without charge from

NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. Macroprudential Research Network This paper presents research conducted within the Macroprudential Research Network (MaRs). The network is composed of economists from the European System of Central Banks (ESCB), i.e. the 27 national central banks of the European Union (EU) and the European Central Bank. The objective of MaRs is to develop core conceptual frameworks, models and/or tools supporting macro-prudential supervision in the EU. The research is carried out in three work streams: 1) Macro-financial models linking financial stability and the performance of the economy; 2) Early warning systems and systemic risk indicators; 3) Assessing contagion risks.

The recent severe financial crisis which led to the “Great Recession ” represented a serious failure of economic management and financial regulation. Post mortem analysis of the crisis has brought to the fore a set of ideas for the use of “macroprudential ” tools to improve regulation. This awkward term refers to an approach to financial regulation that fills the gap between conventional macroeconomic policy and traditional “prudential ” (or “safety and soundness”) regulation of individual financial institutions. The concept is to manage factors that could endanger the financial system as a whole, even if they would not be obvious as serious threats when viewed in the context of any single institution. Risks that are common to many financial institutions simultaneously, such as excessive exposure to housing credit, can combine with a high degree of interconnections between financial institutions to create systemic risks even when each individual institution appears sound, absent the potential for financial contagion. As Paul Tucker, Deputy Governor of the Bank of England for Financial Stability, put it, “there is a missing set of instruments. The big question is whether a set can be devised that stack up not only in theory but in practice; instruments that can be used in the real world. 2 ” This paper explains that missing set of instruments and how they might work. The first section makes the case for macroprudential policy, with

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Stefan Gerlach, Eric Monnet and the conference participants for their helpful comments. We are also grateful for suggestions made by participants at the Financial Stability Conference held at the European Banking Center at Tilburg University. The views expressed here are our own and are not necessarily those of LUISS (Roma), Duke University, the Center for Economic Policy Research, Rutgers University, or the National Bureau of Economic Research. Support from the Norges Bank for this project is gratefully acknowledged. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Abstract We investigate a new macroprudential policy in a DSGE model with …nancial frictions. As Gertler,