Reserve Requirements in the Brave New Macroprudential World

48 Pages Posted: 20 Apr 2016

See all articles by Tito Cordella

Tito Cordella

World Bank

Pablo Mariano Federico

BlackRock, Inc

Carlos A. Vegh

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); University of Maryland - Department of Economics; University of California at Los Angeles; National Bureau of Economic Research (NBER)

Guillermo Vuletin

Brookings Institution

Date Written: February 1, 2014

Abstract

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.

Keywords: Debt Markets, Emerging Markets, Currencies and Exchange Rates, Economic Theory & Research, Banks & Banking Reform

Suggested Citation

Cordella, Tito and Federico, Pablo Mariano and Vegh, Carlos A. and Vuletin, Guillermo, Reserve Requirements in the Brave New Macroprudential World (February 1, 2014). World Bank Policy Research Working Paper No. 6793, Available at SSRN: https://ssrn.com/abstract=2404643

Tito Cordella (Contact Author)

World Bank ( email )

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Pablo Mariano Federico

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
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Carlos A. Vegh

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

University of California at Los Angeles ( email )

Box 951477
Los Angeles, CA 90095-1477
United States
310-825-7371 (Phone)
310-825-9528 (Fax)

HOME PAGE: http://vegh.sscnet.ucla.edu

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Guillermo Vuletin

Brookings Institution ( email )

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