Externalities and Macroprudential Policy

Nicoló, Gianni De; Favara, Giovanni; Ratnovski, Lev

doi:10.5089/9781475504095.006

Cited by 56 publications

(18 citation statements)

References 62 publications

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“…In this context, MaPP are promising in principle, as academic research has also highlighted (for an early analytical review of the need for MaPP, see ; see also Hanson, Kayshap, andStein, 2011, andDe Nicolò et al, 2012).…”

Section: Why Macro-prudential Regulations May Be Needed and The Amentioning

confidence: 99%

“…See further Brunnermeier and Pedersen (2009), Adrian andGeanakoplos (2009). 10 Strategic complementarity arises when the payoff to a certain strategy rises with the number of financial institutions adopting the same strategy (De Nicolò et al, 2012).…”

Section: B Risks From Interconnectednessmentioning

confidence: 99%

“…The prospect of a government bailout in the event of financial distress can also lead banks to engage in correlated asset choice ex ante. As financial institutions try to mimic each other's strategy-knowing there is safety in numbers-there is an increase in the systemic vulnerabilities of the financial system (De Nicolò et al, 2012).…”

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confidence: 99%

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Macro-Prudential Policies to Mitigate Financial System Vulnerabilities

Claessens

Ghosh²,

Mihet³

2014

IMF Working Papers

110

101

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Macro-prudential policies (MaPP), aimed at reducing systemic financial risk, have become part of the toolkit of policy makers in many emerging markets (EMs) and some advanced countries (ACs). We review the analytical foundations for such policies. We then use panel data regression to analyze changes in balance sheets of some 2800 banks in 48 countries over 2000-2010 to identify those MaPP most effective in reducing financial cycles. We find that debt-to-income caps, loan-to-value ratios, and limits on credit growth foreign currency lending are effective in reducing leverage, asset and non-core to core liabilities growth during boom times, while countercyclical buffers (such as reserve requirements, limits on profit distribution, and dynamic provisioning) help mitigate declines in bank leverage and asset growth in adverse times. We conclude that MaPP can be important elements of the policy toolkit aimed at overall systemic risk mitigation, especially for EMs exposed to international shocks, but need to be properly designed and calibrated. _________________________

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Section: Why Macro-prudential Regulations May Be Needed and The Amentioning

confidence: 99%

Section: B Risks From Interconnectednessmentioning

confidence: 99%

See 1 more Smart Citation

Macro-Prudential Policies to Mitigate Financial System Vulnerabilities

Claessens

Ghosh²,

Mihet³

2014

IMF Working Papers

110

101

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“…The literature has classifi ed the known fi nancial systemic externalities in three categories (De Nicoló et al 2012 ). The fi rst two categories have a time-series nature, one before the crisis and the other after the crisis.…”

Section: Macroprudential Policiesmentioning

confidence: 99%

Islamic Finance and Macroprudential Policy: The Case of Iranian Banking System

Hadian

2016

Macroprudential Regulation and Policy for the Islamic Financial Industry

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In response to the build-up of systemic risks and widespread fi nancial vulnerabilities, mainstream policymakers in many countries have adopted macroprudential regulations to mitigate systemic risks in the fi nancial sector as a whole. Islamic fi nance, on the other hand, has its own unique features promising stable fi nancial markets. The experience, however, has shown divergence between the ideal and practiced version of Islamic fi nance, where the majority of Islamic fi nancial contracts are highly similar to those of the conventional fi nancial system. In other words, the proportion of preferred contracts of Islamic fi nance, the PLS modes of fi nance, is small. It has been argued that this exposes the Islamic fi nancial system to systemic risks like the conventional system. Therefore, in the long-run, Islamic fi nancial authority should make effort to realize a genuine version of Islamic fi nance by promoting PLS and equity-based fi nance since it is inherently a self-stabilizing instrument of Islamic fi nance, which eliminates the sources of systemic risks in the fi nancial sector. In the short-run, nevertheless, the Islamic fi nancial system should be subjected to macroprudential regulations, but those instruments and tools that are primarily permissible in sharia, and then compatible with countries' circumstances, should be adopted. In the case of Iran, the analysis shows an urgent need for macroprudential regulations in Iranian banking system.

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“…In showing how these balance‐sheet rules can nevertheless amplify macro shocks, it offers a new variety of micro‐founded macroeconomics; together with an intellectual case for ‘Macro‐pru’ to check such unintended side effects. Writing in 2012, De Niccolo et al . at the International Monetary Fund also expressed the view the raison d'etre for macro‐prudential policy is to correct externalities. Could this be the ‘new track’ that Solow has sign‐posted?…”

Section: Conclusion: Solow's Signpostmentioning

confidence: 99%

The Hedgehog and the Fox: From DSGE to Macro‐Pru

Miller

Zhang

2015

The Manchester School

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Prior to the financial crisis of 2008/9, DSGE models-without-money set a new standard in applied macroeconomics; and they were widely adopted by Central Banks to help achieve their inflation targets.Controlling inflation did not deliver financial stability, however: far from it. What about the role of externalities? We examine, in particular, how steps to mitigate microeconomic principal/agent problems can create macroeconomic externalities --'financial accelerators' that affect balance sheets in pro-cyclical fashion.The appeal of macro-models based on 'efficient financial markets' surely contributed to overconfidence before the crisis. Now is the time, we argue, to embrace a wider perspective.(99 words) [Forthcoming in The Manchester School ]

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Externalities and Macroprudential Policy

Cited by 56 publications

References 62 publications

Macro-Prudential Policies to Mitigate Financial System Vulnerabilities

Macro-Prudential Policies to Mitigate Financial System Vulnerabilities

Islamic Finance and Macroprudential Policy: The Case of Iranian Banking System

The Hedgehog and the Fox: From DSGE to Macro‐Pru

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