Sudden floods, macroprudential regulation and stability in an open economy

Agénor, Pierre‐Richard; Alper, Koray; Silva, Luiz A. Pereira da

doi:10.1016/j.jimonfin.2014.07.007

Cited by 38 publications

(35 citation statements)

References 40 publications

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“…Its key features are similar to those described in Agénor et al (2014Agénor et al ( , 2015 for an individual country, so we refer to those papers for a detailed discussion. In brief, the home repayment…”

Section: Equilibrium and Steady Statesupporting

confidence: 58%

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Financial Development and Economic Growth: The Role of Financial Liberalization

Atiq

Haque

2014

SSRN Journal

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This paper evaluates, using a game-theoretic approach, the benefits of coordinating macroprudential policy (in the form of reserve requirements) in a two-country model of a currency union with credit market imperfections. Financial stability is first defined in terms of the volatility of the credit-to-output ratio. The gains from coordination are measured by comparing outcomes under a centralized regime, where a common regulator sets the required reserve ratio to minimize union-wide financial volatility, and a decentralized (Nash) regime, where each country regulator sets that ratio to minimize its own policy loss. Experiments show that, under asymmetric real and financial shocks, the gains from coordination are significant at the union level. Moreover, these gains are higher when the common and national regulators have asymmetric preferences with respect to output stability, when financial markets are more integrated, and when the degree of asymmetry in credit markets between members is larger. Implications of the analysis for macroprudential policy coordination in the euro area are also discussed. JEL Classification Numbers: E58, F41, F45

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Section: Equilibrium and Steady Statesupporting

confidence: 58%

“…where  ∈ (0 1) is the share of the housing stock that can be effectively pledged as As shown by Agénor et al (2014Agénor et al ( , 2015, the solution to this problem yields…”

Section:  mentioning

confidence: 99%

Financial Development and Economic Growth: The Role of Financial Liberalization

Atiq

Haque

2014

SSRN Journal

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“…The need for such coordination stems from the observation that monetary and macroprudential policy tools are not independent, as they affect both the monetary and credit conditions via their effect on credit growth. At the same time, the best economic outcomes can be expected if both policies are used in a complementary manner (Agénor et al, 2014). However, in some situations the desired complementarity can be achieved by the two working in opposite directions, while in other situations it may be desirable for them to act in the same direction.…”

Section: Introductionmentioning

confidence: 99%

Monetary policy and macroprudential policy: Rivals or teammates?

Malovaná

Frait

2017

Journal of Financial Stability

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper sheds some light on situations in which monetary and macroprudential policies may interact (and potentially get into conflict) and contributes to the discussion about the coordination of those policies. Using data for the Czech Republic and five euro area countries we show that monetary tightening has a negative impact on the credit-to-GDP ratio and the non-risk-weighted bank capital ratio (i.e. a positive impact on bank leverage), while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build-up of financial vulnerabilities, i.e. it boosts the credit cycle. On the other hand, the effect of the higher bank capital ratio is associated with some degree of uncertainty. For these and other reasons, coordination of the two policies is necessary to avoid an undesirable policy mix preventing effective achievement of the main objectives in the two policy areas. Terms of use: Documents in

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“…Studies along these lines for MICs include those of Agénor et al (, ), which focus on a Basel III type countercyclical regulatory rule and a monetary policy rule augmented with a credit gap variable (measured in terms of deviations of the growth rate of loans for investment from its steady‐state value). Thus, the central bank sets its policy instrument in part to ‘lean against financial winds' in a systematic fashion.…”

Section: How Should Macroprudential Regulation and Monetary Policy Bementioning

confidence: 99%

“…See Financial Services Authority (2009) and Brunnermeier et al (). Agénor and Pereira da Silva (, ) offer a developing‐country perspective.…”

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confidence: 99%

Macroeconomic Stability, Financial Stability, and Monetary Policy Rules

Agénor

Silva

2012

International Finance

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This paper reviews arguments for and against attributing an explicit financial stability objective to monetary policy. The discussion is conducted from the perspective of middle‐income countries (MICs), where bank credit plays a critical role both on the supply and demand sides. It also discusses, on the assumption that a more proactive role is desirable, what monetary policy should react to and to what extent it should be combined with macroprudential regulation. There are robust arguments in favour of monetary policy reacting in a state‐contingent fashion to a measure at the private‐sector credit gap, not only because of financial stability considerations but also because of the high degree of uncertainty regarding real‐time estimates of the output gap in MICs. Nevertheless, monetary policy is not a substitute for macroprudential regulation; in particular, it cannot address the cross‐section dimension of systemic risk.

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Sudden floods, macroprudential regulation and stability in an open economy

Cited by 38 publications

References 40 publications

Financial Development and Economic Growth: The Role of Financial Liberalization

Financial Development and Economic Growth: The Role of Financial Liberalization

Monetary policy and macroprudential policy: Rivals or teammates?

Macroeconomic Stability, Financial Stability, and Monetary Policy Rules

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