The procyclicality of financial systems has received an increasing amount of attention from policymakers, academics and international organizations in recent years. This heightened interest stems from a combination of the ongoing globalization of finance, the role of the financial sector in various emerging market crises in the late 1990s and the potential impact on financial sectors of the upcoming implementation of the Basel II accord. Clearly, some degree of financial sector procyclicality is a characteristic of any normally functioning economy. At issue is whether the observed procyclicality is excessive. The challenge is to define excessive and to identify policy measures that could produce superior economic outcomes.

Foreword
Introduction; S.Gerlach & P.Gruenwald
Procyclicality and Volatility in the Financial System: The Implementation of Basel II and IAS 39; A.Taylor & C.Goodhart
Comments on 'Procyclicality and Volatility in the Financial System: The Implementation of Basel II and IAS 39'; D.Burton, W.A.Ryback & J.Viñals
Sources of Procyclicality in East Asia Financial Systems; R.S.Craig, E.P.Davis & A.G.Pascual
Comments on "Sources of Procyclicality in East Asia Financial Systems"; H.Mingzhi & T.Wantanagase
Procyclical Financial Behaviour: What Can be Done?; P.Lowe & G.Stevens
Comments on "Procyclical Financial Behaviour: What Can be Done?"; M.Gudmundsson, E.Hirano & A.Sheng

STEFAN GERLACH is the former Executive Director of the Research Department at the Hong Kong Monetary Authority and Director of the Hong Kong Institute for Monetary Research. He has published extensively in the areas of Macroeconomics and money and finance, and holds a PhD from the University of Geneva.

PAUL GRUENWALD is the International Monetary Fund's Resident Representative in Hong Kong SAR. He joined the IMF in 1992, and has extensive experience in Northeast Asia and Latin America, particularly in capital and financial markets issues. He holds a PhD in Economics from Columbia University.