Macroprudential regulatory arrangements...

I’ve long believed that asset price cycles should have a much greater role in Fed policy than has been the case. Note, I said “asset price cycles,” not asset prices...Regulatory arrangements – notably restrictions on leverage, liquidity and capital restrictions – that procyclically turbo-charge asset price cycles are an anachronism that need to be not just re-examined, but fixed...Chairman Bernanke’s open call [at Jackson Hole] for a shift to macroprudential regulatory arrangements, not to supplant microprudential regulation, but to enhance it, notably by reducing its procyclical character. The time for such a shift is long, long overdue...

Paul McCulley, Managing Director, Pimco, August 25, 2008