Global Banking, Financial Spillovers, and Macroprudential Policy Coordination

58 Pages Posted: 13 Feb 2019

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Luiz A. Pereira da Silva

Bank for International Settlements (BIS)

Date Written: January 17, 2019

Abstract

The gains from international macroprudential policy coordination are studied in a two-region, core-periphery macroeconomic model with imperfect financial integration and cross-border banking. Financial frictions occur at two levels: between firms and banks in each region, and between periphery banks and a global bank in the core region. Macroprudential regulation takes the form of a countercyclical tax on bank loans to domestic capital goods producers, which responds to real credit growth and is subject to a cost in terms of welfare. Numerical experiments, based on a parameterized version of the model, show that the welfare gains from macroprudential policy coordination are positive, albeit not large, for the world economy. In addition, these gains tend to increase with the degree of international financial integration. However, depending on the origin of financial shocks, they can also be highly asymmetric across regions.

Keywords: global banking, financial spillovers, macroprudential policy coordination

JEL Classification: E58, F42, F62

Suggested Citation

Agenor, Pierre-Richard and Pereira da Silva, Luiz A., Global Banking, Financial Spillovers, and Macroprudential Policy Coordination (January 17, 2019). BIS Working Paper No. 764. Available at SSRN: https://ssrn.com/abstract=3331409

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Luiz A. Pereira da Silva

Bank for International Settlements (BIS)

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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