Financial Spillovers and Macroprudential Policies

Aizenman, Joshua; Chinn, Menzie David; Ito, Hiro

doi:10.3386/w24105

Cited by 19 publications

(9 citation statements)

References 44 publications

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“… 43 Aizenman et al ( 2020 ) found that tighter macroprudential policies in periphery countries helps them to regain monetary independence from core countries – the more so when their financial markets are relatively closed. …”

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confidence: 99%

Financial spillovers, spillbacks, and the scope for international macroprudential policy coordination

Agénor

Silva

2021

Int Econ Econ Policy

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This paper discusses the scope for international macroprudential policy coordination in a financially integrated world economy. It begins with a review of the transmission channels associated with, and the empirical evidence on, financial spillovers and spillbacks. Limitations of the existing literature are also identified. The potential gains associated with cross-border macroprudential coordination, dwelling on both recent analytical contributions and quantitative studies based on multi-country models with financial frictions, are then evaluated. The issue of whether coordination of macroprudential policies simultaneously requires some degree of monetary policy coordination is also discussed. The analysis focuses on the potential for policy coordination between major advanced economies and a group identified as systemically-important middle-income countries (SMICs). Next, practical ways to promote international macroprudential policy coordination are considered. Following a discussion of Basel III’s Principle of reciprocity and ways to improve it, the paper advocates a further strengthening of the current statistical, empirical and analytical work conducted by international financial institutions to evaluate, and raise awareness of, the gains from international coordination of macroprudential policies.

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confidence: 99%

Financial spillovers, spillbacks, and the scope for international macroprudential policy coordination

Agénor

Silva

2021

Int Econ Econ Policy

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“…9 Adrian and Liang (2014) and the IMF (2013) provide conceptual guidelines in this line as well as the literature review. One study, Aizenman et al (2017), slightly differs from this line as it focuses on whether and to what extent the peripheral economies (PHs) insulate themselves from the influence of the center economies (CEs, i.e., the U.S., Japan and the Euro Area) by implementing macroprudential policies. Using the panel data, they show that under certain macroeconomic or policy conditions, a more extensive implementation of macroprudential policies would help the PHs to remain monetary autonomy from the CEs.…”

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confidence: 99%

Macroprudential policy, central banks and financial stability: Evidence from China

Klingelhöfer

Sun

2019

Journal of International Money and Finance

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We study the Chinese experience and provide evidence that central banks can play an active role in safeguarding financial stability. The narrative approach is used to disentangle macropudential policy actions from monetary actions. We show that reserve requirements, window guidance, supervisory pressure and housing-market policies can be used for macroprudential purposes. Our VAR estimates suggest that well-targeted macroprudential policy has immediate and persistent impact on credit, but no statistically significant impact on output. Macroprudential policy can be used to retain financial stability without triggering an economic slowdown, or as a complement to monetary policy to offset the buildup of financial vulnerabilities arising from monetary easing. The multi-instrument framework enables central banks to achieve both macroeconomic and financial stability.

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“…This would give a country more flexibility to respond to negative shocks by reducing interest rates to stabilize growth, rather than tightening monetary policy to support capital inflows or stabilize the currency. Takáts and Temesvary (2019a), Aizenman et al (2020, and Mano and Sgherri (2020) also find that macroprudential policy helps emerging economies gain some monetary policy independence to respond more counter-cyclically to global financial shocks. Aizenman et al (2020) highlight, however, that peripheral economies are less likely to have this independence if they have current account deficits, low reserve levels, relatively closed financial markets, and/or recent sharp increases in net portfolio inflows and credit growth.…”

Section: D Empirical Effects: Pro-cyclicality Boom-bust Cycles Resilience To Shocks and Gdp Growthmentioning

confidence: 99%

The International Aspects of Macroprudential Policy

Forbes

2020

SSRN Journal

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Countries are using macroprudential tools more actively with the goal of improving the resilience of their broader financial systems. A growing body of evidence suggests that these tools can accomplish specific domestic goals and should reduce country vulnerability to many domestic and international shocks. The evidence also suggests, however, that these policies are not an elixir. They will not insulate economies from volatility and they generate leakages to the nonbank financial system and spillovers through international borrowing, lending and other crossborder exposures. Some of these unintended consequences can mitigate the effectiveness of macroprudential policies and generate new vulnerabilities and risks. The "Corona Crisis" provides a lens to evaluate the effectiveness of current macroprudential regulations during a period of extreme market volatility and economic stress. Experience to date suggests that macroprudential tools provide some benefits and can help achieve certain macroeconomic goals, but they have limitations and expectations of what they can accomplish must be realistic.

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Financial Spillovers and Macroprudential Policies

Cited by 19 publications

References 44 publications

Financial spillovers, spillbacks, and the scope for international macroprudential policy coordination

Financial spillovers, spillbacks, and the scope for international macroprudential policy coordination

Macroprudential policy, central banks and financial stability: Evidence from China

The International Aspects of Macroprudential Policy

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