Download or read book Reserve Requirements in the Brave New Macroprudential World written by Tito Cordella and published by World Bank Publications. This book was released on 2014-04-04 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the aftermath of the global financial crisis, it is hard to find any macroeconomic policy report that does not include some reference to financial stability or systemic risk and the resulting need for “macroprudential policies.” While there is a large and growing literature on macroprudential policies and financial stability, less attention has been paid to how macroprudential policies may facilitate macroeconomic stabilization in the presence of large capital flows. To fill such a gap, this report looks at the use of reserve requirements (RR) as a macroprudential tool. Its findings should be of particular interest to emerging market economists and policymakers that are faced with difficult questions regarding how to cope effectively with volatile capital flows. The analysis builds upon a new dataset on quarterly RR covering a large number of industrial and developing countries for the period 1970-2011. It finds that while no industrial country has resorted to active RR policy since 2004, almost half of developing countries have. Indeed, together with interest rates adjustments and forex interventions, RR seem to be an important component of a trio of policy instruments that developing countries have relied upon to navigate through the boom-bust cycles driven by capital flows. The ultimate reason for resorting to RR lies essentially on the procyclical behavior of the exchange rate over the business cycle in developing countries (with the currency depreciating in bad times and appreciating in good times) that complicates enormously the use of interest rates as a countercyclical instrument. Under such circumstances, RR are an effective instrument that can be used countercyclically when concerns about the effects of interest rates on the exchange rate become paramount. Finally, the report suggests that while, from a macroprudential point of view, the most common macroprudential instruments are equivalent, from a microprudential one they are not. Conflicts may thus arise between the micro- and macro-prudential policy stances. In addition, the overall design of macroprudential policies should follow a careful analysis of the role that different financial frictions play in various environments since similar symptoms can reflect very different underlying forces.

Download or read book Reserve Requirements in the Brave New Macroprudential World written by Tito Cordella and published by . This book was released on 2014-04-19 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In the aftermath of the global financial crisis, it is hard to find any macroeconomic policy report that does not include some reference to financial stability or systemic risk and the resulting need for macroprudential policies. While there is a large and growing literature on macroprudential policies and financial stability, less attention has been paid to how macroprudential policies may facilitate macroeconomic stabilization in the presence of large capital flows. To fill such a gap, this report looks at the use of reserve requirements (RR) as a macroprudential tool. Its findings should be of particular interest to emerging market economists and policymakers that are faced with difficult questions regarding how to cope effectively with volatile capital flows. The analysis builds upon a new dataset on quarterly RR covering a large number of industrial and developing countries for the period 1970-2011. It finds that while no industrial country has resorted to active RR policy since 2004, almost half of developing countries have. Indeed, together with interest rates adjustments and forex interventions, RR seem to be an important component of a trio of policy instruments that developing countries have relied upon to navigate through the boom-bust cycles driven by capital flows. The ultimate reason for resorting to RR lies essentially on the procyclical behavior of the exchange rate over the business cycle in developing countries (with the currency depreciating in bad times and appreciating in good times) that complicates enormously the use of interest rates as a countercyclical instrument. Under such circumstances, RR are an effective instrument that can be used countercyclically when concerns about the effects of interest rates on the exchange rate become paramount. Finally, the report suggests that while, from a macroprudential point of view, the most common macroprudential instruments are equivalent, from a microprudential one they are not. Conflicts may thus arise between the micro- and macro-prudential policy stances. In addition, the overall design of macroprudential policies should follow a careful analysis of the role that different financial frictions play in various environments since similar symptoms can reflect very different underlying forces.

Download or read book Reserve Requirements in the Brave New Macroprudential World written by Tito Cordella and published by . This book was released on 2017 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a new, large data set on quarterly reserve requirements for the period 1970-2011, this paper provides new evidence on the use of reserve requirements as a countercyclical macroprudential tool in developing countries. The appeal of reserve requirements lies in the pro-cyclical behavior of the exchange rate over the business cycle in developing countries. This enormously complicates the use of interest rates as a countercyclical instrument (because of its effect on the exchange rate) and calls for a second instrument. The paper suggests that conflicts may arise between the microprudential and macroprudential policy stances.

Download or read book Brave New World written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Macroeconomic Effects of Macroprudential Policy written by Diego Rojas and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the macroeconomic effects of macroprudential policy-in the form of legal reserve requirements-in three Latin American countries (Argentina, Brazil, and Uruguay). To correctly identify innovations in changes in legal reserve requirements, a narrative approach-based on contemporaneous reports from the IMF and central banks in the spirit of Romer and Romer (2010)-is developed in which each change is classified into endogenous or exogenous to the business cycle. This distinction is critical in understanding the macroeconomic effects of reserve requirements. In particular, while output falls in response to exogenous increases in legal reserve requirements, it is not affected when using all changes and relying on traditional time-identifying strategies. This bias reflects the practical relevance of the misidentification of endogenous countercyclical changes in reserve requirements. The empirical frontier is also pushed along two important dimensions. First, in measuring legal reserve requirements, both the different types of legal reserve requirements in terms of maturity and currency of denomination as well as the structure of deposits are taken in account. Second, since in practice reserve requirement policy is tightly linked to monetary policy, the study jointly analyze the macroeconomic effects of changes in central bank interest rates. To properly identify exogenous central bank interest rate shocks, the Romer and Romer (2004) strategy is used.

Download or read book An Overview of Macroprudential Policy Tools written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2014-12-11 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Macroprudential policies – caps on loan to value ratios, limits on credit growth and other balance sheets restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies – have become part of the policy paradigm in emerging markets and advanced countries alike. But knowledge is still limited on these tools. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They can also interact with various other policies, such as monetary and microprudential, raising coordination issues. Some countries, especially emerging markets, have used these tools and analyses suggest that some can reduce procyclicality and crisis risks. Yet, much remains to be studied, including tools’ costs ? by adversely affecting resource allocations; how to best adapt tools to country circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting tools.

Download or read book Macro Prudential Policies to Mitigate Financial System Vulnerabilities written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2014-08-19 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Macro-prudential policies aimed at mitigating systemic financial risks have become part of the policy toolkit in many emerging markets and some advanced countries. Their effectiveness and efficacy are not well-known, however. Using panel data regressions, we analyze how changes in balance sheets of some 2,800 banks in 48 countries over 2000–2010 respond to specific macro-prudential policies. Controlling for endogeneity, we find that measures aimed at borrowers––caps on debt-to-income and loan-to-value ratios––and at financial institutions––limits on credit growth and foreign currency lending––are effective in reducing asset growth. Countercyclical buffers are little effective through the cycle, and some measures are even counterproductive during downswings, serving to aggravate declines, consistent with the ex-ante nature of macro-prudential tools.

Download or read book Monetary Policy and Macroprudential Regulation with Financial Frictions written by Pierre-Richard Agenor and published by MIT Press. This book was released on 2020-11-10 with total page 601 pages. Available in PDF, EPUB and Kindle. Book excerpt: An integrated analysis of how financial frictions can be accounted for in macroeconomic models built to study monetary policy and macroprudential regulation. Since the global financial crisis, there has been a renewed effort to emphasize financial frictions in designing closed- and open-economy macroeconomic models for monetary and macroprudential policy analysis. Drawing on the extensive literature of the past decade as well as his own contributions, in this book Pierre-Richard Agénor provides a unified set of theoretical and quantitative macroeconomic models with financial frictions to explore issues that have emerged in the wake of the crisis. These include the need to understand better how the financial system amplifies and propagates shocks originating elsewhere in the economy; how it can itself be a source of aggregate fluctuations; the extent to which central banks should account for financial stability considerations in the conduct of monetary policy; whether national central banks and regulators should coordinate their policies to promote macroeconomic and financial stability; and how much countercyclical macroprudential policies should be coordinated at the international level to mitigate financial spillovers across countries. Agénor focuses on upper middle-income countries, which differ from advanced economies in terms of both their structural features (which include a financial sector dominated by banks, weak supervisory capacity, and a high degree of vulnerability to external shocks) and their long-standing policy challenges (such as managing volatile capital flows). Some of the analytical insights and broad policy lessons that can be drawn from the book will be of relevance to advanced economies as well.

Download or read book The Use and Effectiveness of Macroprudential Policies written by Mr.Eugenio Cerutti and published by International Monetary Fund. This book was released on 2015-03-17 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a recent IMF survey and expanding on previous studies, we document the use of macroprudential policies for 119 countries over the 2000-13 period, covering many instruments. Emerging economies use macroprudential policies most frequently, especially foreign exchange related ones, while advanced countries use borrower-based policies more. Usage is generally associated with lower growth in credit, notably in household credit. Effects are less in financially more developed and open economies, however, and usage comes with greater cross-border borrowing, suggesting some avoidance. And while macroprudential policies can help manage financial cycles, they work less well in busts.

Download or read book Europe Beyond the Euro written by Charles Enoch and published by Springer Nature. This book was released on 2021-09-24 with total page 389 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book observes that a key determinant of Europe’s welfare over the coming decades will be how the region manages crises, both financial and societal. It examines how key institutional developments, such as Economic and Monetary Union, reflected differentiated integration (DI) in the EU, but argues that modern-day risks are highly interconnected, and their management therefore has to be inclusive. In that connection it looks in particular at the European Systemic Risk Board (ESRB), whose mandate to protect financial stability also gives it relevance with regard to other crises. The book considers that the strengthening of this institution, and bringing it to the fore, would help EU member states, as well as countries around the EU including applicant nations, to manage financial and societal risks, including COVID-19 and the transition to a green economy, thus safeguarding the economies of Europe. It builds on a model of the EU allowing for DI in some activities, while ensuring sound governance arrangements between those inside and those outside that activity, and embodying inclusivity in the fundamentals of the EU, including ​in the management of risk.

Download or read book Managing the Tide written by Mr.Atish R. Ghosh and published by International Monetary Fund. This book was released on 2017-03-27 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether—and how—emerging market economies (EMEs) respond to capital flows to mitigate their untoward consequences. Based on a sample of about 50 EMEs over 2005Q1–2013Q4, we find that EME policy makers respond proactively to capital inflows by using a combination of policy tools: central banks raise the policy interest rate to address economic overheating concerns; intervene in the foreign exchange market to resist currency appreciation pressures; tighten macroprudential measures to dampen credit growth; and deploy capital inflow controls in the face of competitiveness and financial-stability concerns. Contrary to conventional policy advice to EMEs, we find no evidence of counter-cyclical fiscal policy in the face of capital inflows. Overall, policies are more likely to respond, and used in combination, during inflow surges than in more normal times.

Download or read book Changes in Prudential Policy Instruments A New Cross Country Database written by Mr.Eugenio M Cerutti and published by International Monetary Fund. This book was released on 2016-09-08 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper documents the features of a new database that focuses on changes in the intensity in the usage of several widely used prudential tools, taking into account both macro-prudential and micro-prudential objectives. The database coverage is broad, spanning 64 countries, and with quarterly data for the period 2000Q1 through 2014Q4. The five types of prudential instruments in the database are: capital buffers, interbank exposure limits, concentration limits, loan to value (LTV) ratio limits, and reserve requirements. A total of nine prudential tools are constructed since some useful further decompositions are presented, with capital buffers divided into four subindices: general capital requirements, real state credit specific capital buffers, consumer credit specific capital buffers, and other specific capital buffers; and with reserve requirements divided into two sub-indices: domestic currency capital requirements and foreign currency capital requirements. While general capital requirements have the most changes from the cross-country perspective, LTV ratio limits and reserve requirements have the largest number of tightening and loosening episodes. We also analyze the instruments’ usage in relation to the evolution of key variables such as credit, policy rates, and house prices, finding substantial differences in the patterns of loosening or tightening of instruments in relation to business and financial cycles.

Download or read book Taming the Tide of Capital Flows written by Atish R. Ghosh and published by MIT Press. This book was released on 2018-01-12 with total page 489 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive examination of policy measures intended to help emerging markets contend with large and volatile capital flows. While always episodic in nature, capital flows to emerging market economies have been especially volatile since the global financial crisis. After peaking at $680 billion in 2007, flows to emerging markets turned negative at the onset of crisis in 2008, then rebounded only to recede again during the U.S. sovereign debt downgrade in 2011. Since then, flows have continued to swing wildly, leaving emerging market policy makers wondering whether they can put in place policies during the inflow phase that will soften the blow when flows subsequently recede. This book offers the first comprehensive treatment of policy measures intended to help emerging markets contend with large and volatile capital flows. The authors, all IMF experts, explain that, in the spirit of liberalization and deregulation in the 1980s and 1990s, many emerging market governments eliminated capital inflow controls along with outflow controls. By 2012, however, capital inflow controls were again acknowledged as legitimate policy tools. Focusing on the macroeconomic and financial-stability risks associated with capital flows, the authors combine theoretical and empirical analysis to consider the interaction between monetary, exchange rate, macroprudential, and capital control policies to mitigate these risks. They examine the effectiveness of various policy tools, discuss the practical considerations and multilateral implications of their use, and provide concrete policy advice for dealing with capital inflows.

Download or read book OECD Economic Outlook Volume 2020 Issue 2 written by OECD and published by OECD Publishing. This book was released on 2020-12-01 with total page 267 pages. Available in PDF, EPUB and Kindle. Book excerpt: The COVID-19 pandemic will cast a long shadow over the world’s economies and the economic outlook is very uncertain. This issue of the OECD Economic Outlook analyses the impacts of COVID-19 on the economy and puts forward projections for output, employment, prices, fiscal and current account balances.

Download or read book Regional Economic Outlook October 2015 Western Hemisphere Department written by International Monetary Fund. Western Hemisphere Dept. and published by International Monetary Fund. This book was released on 2015-10-07 with total page 108 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economies in the Western Hemisphere are generally seeing a slowdown in growth. The U.S. economy regained momentum after a slow start at the beginning of the year, while in Latin America and the Caribbean economic activity continues to decelerate. Stronger U.S. growth should benefit countries in the region, especially those with tighter links through trade, remittances, and tourism (Mexico, Central America, and the Caribbean). Weaker commodity prices for the foreseeable future, however, will continue to hurt South America's net commodity exporters, lowering national incomes, reducing investment, and worsening fiscal balances. These developments could, in turn, impede progress made in recent years in poverty reduction. These developments could, in turn, impede progress made in recent years in poverty reduction. Key risks, including an abrupt tightening of U.S. interest rates or a further slowdown in China, may disproportionately affect Latin America. Chapters in this report examine monetary policy in Latin America, including the region’s exposure to global financial shocks; the role of value chains and regional trade agreements in fostering trade integration; and financial market development in the region.

Download or read book OECD Economic Outlook Volume 2020 Issue 1 written by OECD and published by OECD Publishing. This book was released on 2020-06-10 with total page 336 pages. Available in PDF, EPUB and Kindle. Book excerpt: The OECD Economic Outlook is the OECD's twice-yearly analysis of the major economic trends and prospects for the next two years. This issue includes a general assessment of the macroeconomic situation, a series of notes on the macroeconomic and structural policy issues related to the COVID-19 outbreak and a chapter summarising developments and providing projections for each individual country.

Download or read book U S Monetary Policy Normalization and Global Interest Rates written by Carlos Caceres and published by International Monetary Fund. This book was released on 2016-09-29 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: As the Federal Reserve continues to normalize its monetary policy, this paper studies the impact of U.S. interest rates on rates in other countries. We find a modest but nontrivial pass-through from U.S. to domestic short-term interest rates on average. We show that, to a large extent, this comovement reflects synchronized business cycles. However, there is important heterogeneity across countries, and we find evidence of limited monetary autonomy in some cases. The co-movement of longer term interest rates is larger and more pervasive. We distinguish between U.S. interest rate movements that surprise markets versus those that are anticipated, and find that most countries receive greater spillovers from the former. We also distinguish between movements in the U.S. term premium and the expected path of risk-free rates, concluding that countries respond differently to these shocks. Finally, we explore the determinants of monetary autonomy and find strong evidence for the role of exchange rate flexibility, capital account openness, but also for other factors, such as dollarization of financial system liabilities, and the credibility of fiscal and monetary policy.