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

Abstract

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.

Bank financing for private sector development in sub-Saharan Africa: Do resilience and spillover effects matter?

“…They can also be predominant through gross domestic expenditure, in ation and bank pro tability. These main results are consistent with the facts established by Agénor and Silva (2018) and Mlachila et al (2013).…”

“…This result implies that bank lending to the private sector increases by 0.32*** per cent in a given sub-Saharan African country, while bank credit increases by one per cent on average in neighbouring countries. Plausible explanations for this result lie in conventional channels such as information or con dence effects, trade linkages, and policy spillovers, the role of global banks, and macroprudential policy leakages, as discussed by Agénor and Silva (2018).…”

“…In addressing the link between nance and economic growth, Levine (2005) identi es other determinants of nancial development such as demography, culture, and geography that have been studied in the literature. The nature of cross-border nancial spillovers and their transmission channels were outlined by Agénor and Silva (2018). Besides, key stylized facts and trends in banking development in sub-Saharan Africa have been established by Mecagni et al (2015).…”

Macro-Financial Stability in the COVID-19 Crisis: Some Reflections

“…28 25 Part of the increase in yields and tightening of domestic financial conditions may reflect monetary policy normalization by EMDE central banks battling with inflationary pressures. 26 Macro-financial instability in EMDEs could have significant implications for advanced economies through multiple channels including by imposing losses on their financial institutions, as well as by reducing demand for their imports Ghosh, Ostry & Qureshi 2017;Obstfeld 2020;Agénor & da Silva 2022). 27 Hespeler and Suntheim ( 2020) document that open-ended mutual funds experienced a short period of intense withdrawals during the March 2020 market stress episode.…”

Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle

“…The papers that assess whether macroprudential regulations affect capital flows generally find insignificant effects on the volume of flows but more robust evidence that they can affect the composition of flows (i.e., duration and type of capital flow). 4 A more recent branch of this literature is beginning to examine the direct effects of macroprudential policies on their targets and the leakages to non-bank financial intermediation and spillovers to other countries (Agénor and da Silva, 2018;Avdjiev et al, 2016). 5 For example, Ahnert et al (2021) model how tighter FX regulations reduce cross-border bank flows and bank vulnerability to exchange rate movements (which correlate to risk shocks) but shift these vulnerabilities to investors as firms shift to nonbank sources of finance, such as issuing bonds.…”