Macroprudential Regulations in Central America

37 Pages Posted: 22 Mar 2013

See all articles by Alejandro Izquierdo

Alejandro Izquierdo

Inter-American Development Bank (IDB) - Research Department

Rudy J. Loo-Kung

Inter-American Development Bank (IADB)

Liliana Rojas-Suarez

Center for Global Development

Date Written: March 19, 2013

Abstract

In recent years, and especially in the aftermath of the global financial crisis, a number of emerging-market economies have been reforming their regulatory frameworks to adopt recommendations of the macroprudential approach. This paper discusses the potential usefulness of implementing this approach in Central America. Two major results support serious consideration of this type of policy in the region. First, credit booms in Central America are not only as pronounced as in other emerging economies, they are also associated with significantly lower economic growth during downturns. Regulations that minimize the eruption of credit booms and busts are therefore warranted. Second, simulation exercises involving two of the most popular instruments under the macroprudential approach - reserve requirements and dynamic provisioning - suggest significant potential benefits for the stability of financial systems in the region.

Keywords: macroprudential regulation, monetary policy, financial stability, Central America

JEL Classification: E58, G28, O54

Suggested Citation

Izquierdo, Alejandro and Loo-Kung, Rudy J. and Rojas-Suarez, Liliana, Macroprudential Regulations in Central America (March 19, 2013). Center for Global Development Working Paper No. 318, Available at SSRN: https://ssrn.com/abstract=2236383 or http://dx.doi.org/10.2139/ssrn.2236383

Alejandro Izquierdo (Contact Author)

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

Rudy J. Loo-Kung

Inter-American Development Bank (IADB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Liliana Rojas-Suarez

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
46
Abstract Views
1,397
PlumX Metrics