What Motives and Conditions Drive Countries to Adopt Macroprudential and Capital Management Measures?

Abstract

Countries choose diverse policy mixes of macroprudential and capital flow management measures, yet the drivers behind these policy choices remain largely unexplored. We identify potential conditions for the adoption and determinants of the use of macroprudential and capital flow management measures from the theoretical literature and test them empirically. Rich and high-growth economies tend to rely on macroprudential policy measures, while the use of capital flow management measures decreases as the regulatory environment improves. Countries with a large foreign bank presence tend to implement fewer macroprudential and capital flow management measures.

Keywords: Macroprudential policy, Capital controls, Foreign banks

JEL Classification: E58, F33, F38, G28