The International Dimensions of Macroprudential Policies

51 Pages Posted: 26 Jun 2017

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Enisse Kharroubi

Bank for International Settlements (BIS)

Giovanni Lombardo

Bank for International Settlements (BIS)

Luiz A. Pereira da Silva

Bank for International Settlements (BIS)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2017

Abstract

The large economic costs associated with the Global Financial Crisis have generated renewed interest in macroprudential policies and their international coordination. Based on a core-periphery model that emphasizes the role of international financial centers, we study the effects of coordinated and non-coordinated macroprudential policies when financial intermediation is subject to frictions. We find that even when the only frictions in the economy consist of financial frictions and financial dependency of periphery banks, the policy prescriptions under international policy coordination can differ quite markedly from those emerging from self-oriented policy decisions. Optimal macroprudential policies must address both short run and long run inefficiencies. In the short run, the policy instruments need to be adjusted to mitigate the adverse consequences of the financial accelerator, and its cross-country spillovers. In the long run, policymakers need to take into account the effects of the higher cost of capital, due to the presence of financial frictions. The gains from cooperation appear to be sizable. Nevertheless, their magnitude could be asymmetric, pointing to potential political-economy obstacles to the implementation of cooperative measures.

Keywords: Financial Frictions, international cooperation, International spillovers, macroprudential policies

JEL Classification: E3, E5, F3, F5, G1

Suggested Citation

Agenor, Pierre-Richard and Gambacorta, Leonardo and Kharroubi, Enisse and Lombardo, Giovanni and Pereira da Silva, Luiz A., The International Dimensions of Macroprudential Policies (June 2017). CEPR Discussion Paper No. DP12108. Available at SSRN: https://ssrn.com/abstract=2992558

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Enisse Kharroubi

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Giovanni Lombardo

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Luiz A. Pereira da Silva

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/luiz_awazu_pereira_da_silva.htm

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