Financial Spillovers and Macroprudential Policies

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

doi:10.1007/s11079-020-09580-9

Cited by 33 publications

(7 citation statements)

References 45 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This is not only akin to the parallel literature on effectiveness of capital controls, but is also consistent with some of the related literature like Aizenman et al. (2020) and Cerutti et al (2017) who find that MaPs work better during boom periods.…”

Section: Asymmetry Of Real Interest Rates and Effectiveness Of Mapssupporting

confidence: 89%

“…Aizenman et al. (2020) have also noted the higher ‘extensity of MaP implementation’ by EMDEs relative to the industrialised countries, especially post‐GFC. Considering the heavy dependence of MaPs among EMDEs, do we observe any differences when we examine the effectiveness of MaPs across countries with different income levels?…”

Section: Empirical Findingsmentioning

confidence: 97%

“…In the process, we also check whether the impact of MaPs vary by their type, that is instruments that target borrowers versus financial institutions. Second, motivated by the literature that suggests that MaPs are more effective in limiting booms than preventing busts (Aizenman et al., 2020), we consider the issue of interest rate asymmetry to ascertain if MaPs have been more effective during periods of rising or falling interest rate differentials.…”

Section: Motivation and Contribution To Literaturementioning

confidence: 99%

See 2 more Smart Citations

Do macroprudential policies counter real exchange rate appreciation in emerging markets?

2021

View full text Add to dashboard Cite

A competitive and stable real exchange rate (RER) has been recognised as an important variable for promoting economic development, especially in emerging and developing economies (EMDEs). The postglobal financial crisis era, however, has seen a marked deluge of global liquidity from ultra‐loose monetary policy in advanced economies, which has led to a surge in capital inflows and consequent loss of external competitiveness in several EMDEs. Given this context, this paper empirically investigates if and what types of macroprudential policies (MaPs) have been effective in countering RER appreciations in a panel of 93 EMDEs over the period 2000–2013. Our results show strong evidence that MaPs moderate RER appreciation through the real interest rate channel, though this is limited to MaPs that target financial institutions rather than borrowers. There is also evidence to suggest that MaPs work more effectively during periods of rising rather than falling real interest rates.

show abstract

Section: Asymmetry Of Real Interest Rates and Effectiveness Of Mapssupporting

confidence: 89%

Section: Empirical Findingsmentioning

confidence: 97%

Section: Motivation and Contribution To Literaturementioning

confidence: 99%

See 1 more Smart Citation

Do macroprudential policies counter real exchange rate appreciation in emerging markets?

2021

View full text Add to dashboard Cite

show abstract

“…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

2021

Annu. Rev. Econ.

View full text Add to dashboard Cite

Countries are making more active use of macroprudential tools than in the past 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 a country's 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 cross-border exposures. Some of these unintended consequences can mitigate the effectiveness of macroprudential policies and generate new vulnerabilities and risks. The COVID-19 crisis provides a lens to evaluate the effectiveness of current macroprudential regulations during a period of extreme market volatility and economic stress. The experience to date suggests that macroprudential tools provide some benefits and should remain a focus of macroeconomic policy, but with realistic expectations about what they can accomplish. Expected final online publication date for the Annual Review of Economics, Volume 13 is August 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

show abstract

“…Furthermore, they demonstrate that the use of macroprudential regulation is correlated with a small likelihood of financial crises and rises in capital movements in the next periods. Aizenman et al (2020) analyzed the spillover impacts of capital controls introduction on the association of the monetary policy between the center and the peripheral economies. Their results show that broad application of macro-prudential rules, compared to capital controls, would lead peripheral economies to retrieve monetary autonomy from the center economies when these later apply a supportive monetary policy.…”

Section: Theoretical Considerationsmentioning

confidence: 99%

Attenuating international financial shocks: the role of capital controls

Zehri

2021

IJOEM

View full text Add to dashboard Cite

PurposeBy reinforcing monetary policy independence, reducing international financing pressures and avoiding high-risk takings, capital controls strengthen the stability of the financial system and then reduce the volatility of capital inflows. The objective of this study was to conduct an empirical examination of this hypothesis. This topic has received strong support in the theoretical literature; however, empirical work has been quite limited, with few empirical studies that provide direct empirical support to this hypothesis.Design/methodology/approachThis study analyzed quarterly data of 32 emerging economies over the period between 2000 and 2015 and proposes two methods to identify capital control actions. Using panel analysis, Autoregressive Distributed Lag and local projections approaches.FindingsThis study found that tighter capital controls may diminish monetary and exchange rate shocks and reduce capital inflows volatility. Furthermore, capital controls respond counter-cyclically to monetary shocks. Under capital controls, countries with floating exchange rate regimes have more potential to buffer monetary shocks. We also found that capital controls on inflows are more effective for reducing the volatility of capital inflows compared to capital controls on outflows.Originality/valueThis study contributes to the question of the effectiveness of capital controls in attenuating the effects of international shocks and reducing the volatility of capital flows. Previous studies have mostly focused on the role of macroprudential regulation; however, there is a lack of systematic effects of capital controls on monetary and exchange rate policies. To our knowledge, this is the first preliminary study to suggest that capital controls may buffer monetary and exchange rate shocks and reduce the volatility of capital inflows. This study investigates the novel notion that capital controls allow for a notable counter-cyclical response of monetary and exchange rate policies to international financial shocks.

show abstract

Financial Spillovers and Macroprudential Policies

Cited by 33 publications

References 45 publications

Do macroprudential policies counter real exchange rate appreciation in emerging markets?

Do macroprudential policies counter real exchange rate appreciation in emerging markets?

The International Aspects of Macroprudential Policy

Attenuating international financial shocks: the role of capital controls

Contact Info

Product

Resources

About