In the Face of Spillovers: Prudential Policies in Emerging Economies

52 Pages Posted: 8 Jan 2020

See all articles by Andra Coman

Andra Coman

European Central Bank (ECB)

Simon Lloyd

Bank of England

Multiple version iconThere are 2 versions of this paper

Date Written: December, 2019

Abstract

We examine whether emerging market prudential policies help to reduce the macrofinancial spillover effects of US monetary policy. We find that emerging markets with tighter prudential policies face significantly smaller, and less negative, spillovers to total credit from US monetary policy tightening shocks. Loan-to-value ratio limits and reserve requirements appear to be particularly effective prudential measures at mitigating the spillover effects of US monetary policy. Our findings indicate that domestic prudential policies can dampen emerging markets’ exposure to US monetary policy and the associated global financial cycle, even when accounting for capital controls, suggesting they may be a useful tool in the face of international macroeconomic policy trade-offs.

Keywords: international spillovers, local projections, monetary policy, policy interactions, prudential policy

JEL Classification: E52, E58, E61, F44

Suggested Citation

Coman, Andra and Lloyd, Simon, In the Face of Spillovers: Prudential Policies in Emerging Economies (December, 2019). Available at SSRN: https://ssrn.com/abstract=3515393 or http://dx.doi.org/10.2139/ssrn.3515393

Andra Coman (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Simon Lloyd

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://sites.google.com/view/splloyd

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