Comparative assessment of macroprudential policies

Bruno, Valentina; Shim, Ilhyock; Shin, Hyun Song

doi:10.1016/j.jfs.2016.04.001

Cited by 239 publications

(154 citation statements)

References 45 publications

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“…Nevertheless, it is possible that even in the short term tighter restrictions on bank foreign borrowing (as discussed here) may lead to a shift in the behavior of the nonfinancial private sector which is such that it weakens the performance of these controls. A related issue is the possibility that, as documented by Bruno, Shim and Shin (2015), controls on some types of inflows may lead over time to substitution or spillover effects. A key question then is whether there are important gains from capital controls despite the existence of leakages or cross-flow effects, and more generally given the ability of the financial system to circumvent regulatory and prudential standards.…”

Section: Cyclically Adjusted Provisioning Rulesmentioning

confidence: 99%

“…Because smoothing financial cycles is a common problem, addressing this challenge will benefit a wide range of countries. At the same time, it is important to keep in mind that, as documented by Bruno, Shim and Shin (2015), macroprudential policies tend to be more successful when they complement monetary policy (by reinforcing monetary tightening) than when they act in opposite direction. Thus, the issue of coordinating monetary and macroprudential policies, possibly in the context of an integrated inflation targeting regime (as discussed by Agénor and Pereira da Silva, 2013), must also be addressed.…”

Section: Policy Lessonsmentioning

confidence: 99%

“…Basel III backstops the capital requirements with a new leverage ratio and requires financial 3 Claessens, Kose and Terrones (2013), Giese et al (2013), Akinci and Olmstead-Rumsey (2015), Bruno, Shim and Shin (2015), and Cerutti, Claessens and Laeven (2015) offer empirical evidence on the performance of macroprudential tools. Basel III actually does not promote a clear framework for dynamic provisioning, beyond supporting the concept in general terms-not least, as discussed later, due to the ongoing debate on the reform of international accounting standards.…”

mentioning

confidence: 99%

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Reserve Requirements and Loan Loss Provisions as Countercyclical Macroprudential Instruments: A Perspective from Latin America

Silva¹,

Agénor²

2016

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work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2016 Abstract * This paper discusses, from an analytical and operational perspective, the use of reserve requirements and loan loss provisions as countercyclical macroprudential instruments. In recent years both of these instruments have been used extensively in Latin America and elsewhere in the world. The first part of the paper sets the stage with a discussion of the rationale, in the presence of financial frictions, for using macroprudential regulation to mitigate financial system procyclicality. The second part reviews the general arguments, as well as the recent empirical evidence for Latin America, associated with the use of reserve requirements and loan loss provisions. The third part provides a normative analysis of the ways through which countercyclical reserve requirements and cyclically adjusted (or, more commonly called, dynamic) provisioning rules should be formulated, independently and jointly, to address concerns arising from procyclicality and financial volatility. Optimal countercyclical rules are discussed from the perspective of how these rules can either minimize a composite measure of economic volatility (combining measures of both macroeconomic and financial volatility) or maximize social welfare. The last part brings together the lessons for policymakers that can be drawn from the analysis. JEL classifications: E51, E58, G28

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Section: Cyclically Adjusted Provisioning Rulesmentioning

confidence: 99%

Section: Policy Lessonsmentioning

confidence: 99%

mentioning

confidence: 99%

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Reserve Requirements and Loan Loss Provisions as Countercyclical Macroprudential Instruments: A Perspective from Latin America

Silva¹,

Agénor²

2016

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“…To be sure, they can be more targeted. And they can help relieve pressure on currency appreciation, which may in turn fuel risk-taking where foreign currency borrowing is widespread (Borio et al (2011), Bruno andShin (2014), Bruno et al (2015)). Even so, there is a certain tension in pressing on the accelerator and brake at the same time, such as when loosening monetary policy while seeking to offset its impact on financial instability through macroprudential measures.…”

Section: /17mentioning

confidence: 99%

Modern Interest Rate Policy and the Phenomenon of Negative Interest Rates

Burlachkov¹

2017

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“…Macroprudential policies can be divided into borrower-based (caps on LTV and DTI ratio) and lender-based, but it has been shown that for East Asia, borrower-based income has been used extensively and showed some impact (Cerutti, Claessens, and Laeven 2015;Bruno, Shim, and Shin 2015).…”

Section: Macroprudential Indexmentioning

confidence: 99%

Dealing with Quantitative Easing Spillovers in East Asia: The Role of Institutions and Macroprudential Policy

2016

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This paper explores the impact of advanced countries' quantitative easing on emerging market economies (EMEs) and how macroprudential policy and good governance play a role in preventing potential financial vulnerabilities. We used confidential locational bank statistics data from the Bank for International Settlements to examine whether quantitative easing has caused an appreciation of EMEs' currencies and how it has done so, and whether this has in turn boosted foreign-currency borrowing, thus making EMEs vulnerable to balance sheet and maturity mismatch problems. While focusing our analysis on East Asian economies, we compare them with Latin American economies, which were also major recipients of quantitative easing capital inflows. We found that government effectiveness plays an important role in curbing excessive borrowing when the exchange rate is overvalued.

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Comparative assessment of macroprudential policies

Cited by 239 publications

References 45 publications

Reserve Requirements and Loan Loss Provisions as Countercyclical Macroprudential Instruments: A Perspective from Latin America

Reserve Requirements and Loan Loss Provisions as Countercyclical Macroprudential Instruments: A Perspective from Latin America

Modern Interest Rate Policy and the Phenomenon of Negative Interest Rates

Dealing with Quantitative Easing Spillovers in East Asia: The Role of Institutions and Macroprudential Policy

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