Institutional mandates for macroeconomic and financial stability

Agénor, Pierre‐Richard; Flamini, Alessandro

doi:10.1016/j.jfs.2022.101063

Cited by 5 publications

(2 citation statements)

References 71 publications

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“…Economic downturns due to inflation and depreciation of rupiah increase the instability of Islamic banks. Using a policy loss evaluation approach, Agenor and Flamini (2022) demonstrate that cooperation is essential for fostering stability in an economy susceptible to financial shocks. First, the coordinated use of the policy rate and the required reserve ratio suggests that these instruments are remarkably effective and complementary in achieving macroeconomic and financial stability, with the required reserve ratio being significantly more effective than the base policy rate in achieving financial stability.…”

Section: Literature Reviewmentioning

confidence: 99%

Effect of Islamic Financial System Stability on Economic Performance in Indonesia: Evidence From Dynamic Factor Model and Nardl Approaches

Law

Ridhwan

2022

JIMF

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This study constructs the financial stability indexes of Islamic and conventional banking systems for Indonesia using the dynamic factor model. Both stability indexes are then linked to economic performance in Indonesia by employing a nonlinear autoregressive distributed lag (NARDL) model. We contribute to the literature by investigating the possibility of asymmetric linkages between both financial system stability indexes and economic performance. The financial stability indexes constructed and a broad range of macro-financial variables can capture the 2008-2009 global financial crisis and the 2020-2021 COVID-19 pandemic crisis periods. The most significant results posit that positive and negative shocks in Islamic financial stability in the long run increase and decrease economic performance, respectively. However, the financial stability of conventional banks is negatively associated with economic performance in the long run. The quantile regression results also demonstrate that Islamic financial stability is statistically significant throughout all quantiles in promoting economic performance. It plays a greater role at lower quantiles and diminishes when the economic performance has been achieved at a high level. However, the conventional banking stability is a negative and significant determinant of economic performance throughout all quantiles. Results highlight that the stability of the financial system especially the Islamic financial system deepening would enhance economic performance.

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Section: Literature Reviewmentioning

confidence: 99%

Effect of Islamic Financial System Stability on Economic Performance in Indonesia: Evidence From Dynamic Factor Model and Nardl Approaches

Law

Ridhwan

2022

JIMF

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“…To do so, they have at their disposal a simple implementable macroprudential rule. To assess the gains from coordination, we use a two‐stage approach, as in Agénor and Flamini (2022). In a first stage, the optimal parameters of the policy rule are solved for using a loss function approach, consistent with a delegated mandate defined in terms of an operational target for financial stability—mitigating credit fluctuations.…”

Section: Introductionmentioning

confidence: 99%

Global banking, financial spillovers and macroprudential policy coordination

2023

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The transmission of financial shocks and the gains from international macroprudential policy coordination are studied in a two‐region, core–periphery model with a global bank, a two‐level financial structure and imperfect financial integration. The model replicates the stylized facts associated with global banking shocks, with respect to output, credit, house prices and real exchange rate fluctuations in recipient countries, as documented empirically. Numerical experiments, based on a parametrized version of the model, show that the gains from coordination increase with the degree of financial integration, which raises the scope for spillback effects from the periphery to the core, through trade and private capital flows. However, even when coordination is Pareto‐improving, the resulting gains may be highly asymmetric across regions.

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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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Institutional mandates for macroeconomic and financial stability

Cited by 5 publications

References 71 publications

Effect of Islamic Financial System Stability on Economic Performance in Indonesia: Evidence From Dynamic Factor Model and Nardl Approaches

Effect of Islamic Financial System Stability on Economic Performance in Indonesia: Evidence From Dynamic Factor Model and Nardl Approaches

Global banking, financial spillovers and macroprudential policy coordination

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

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