## _wp14157 ## Source details **Canonical URL:** [_wp14157](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14157.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14157.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14157.pdf.json) --- ### Introduction and objectives - Develops an open economy DSGE model with an optimizing banking sector to assess: - (1) the impact of capital ináows on the economy and credit-asset price cycles; - (2) the monetary transmission mechanism in the presence of a banking sector and Önancial frictions; - (3) the potential role for macroprudential policies in maintaining macro-Önancial stability and their interactions with monetary policy. - Motivating context: - Central banks have a dual role in maintaining price and Önancial stability following the global Önancial crisis. - Policymakers in Emerging Asia face two interrelated challenges: (i) prevent capital áows from exacerbating macroeconomic overheating pressures and consequent ináation; and (ii) minimize the risk that prolonged easy Önancing conditions undermine Önancial stability. - Policy toolkit beyond monetary and macroprudential policy includes foreign exchange market intervention, currency appreciation, Öncal adjustment, and structural reforms. ### Background and empirical stylized facts - Capital áows to Emerging Asia have been highly volatile: boom from 2006Q4 to 2007Q3, sharp decline during the Global Financial Crisis, upswing from 2009Q3 to 2011Q3; after May 2013 portfolio áows saw a sharp reversal following Fed tapering announcement. - Flows composition and implications: - Flows to non-China Asia dominated by portfolio and other investment (mainly bank loans); both are volatile and sensitive to external financial conditions. - Empirical VAR impulse responses (EM Asia): - A 1 percentage point of GDP increase in equity áows: consumption peak response ≈ 0.4 percentage points of quarter-on-quarter annualized growth; investment peak response > three times that amount. - Investment growth responds positively but short-lived to debt áows (wears off after two quarters). - Main transmission channels of non-FDI capital ináows: reduction in real cost of equity and expansion of private credit. - Real cost of equity decline persists even six quarters after a positive equity ináow shock. - Risks associated with rapid credit growth: asset quality deterioration, bank capital pressures, higher incidence of crises during episodes of rapid credit growth. ### Model structure and key mechanisms - Model type: New Keynesian open-economy DSGE with an optimizing banking sector (building on Gertler and Karadi 2011; Gertler and Kiyotaki 2010) and countercyclical capital requirement (Angelini et al. 2010). - Agents: households (fraction $ bankers and fraction 1$ workers), banks (agency problem, finite survival probability ), firms (capital producers, goods producers, retailers). - Banking sector features and equations (as presented): - Balance sheet: Q_t S_B;t = NW_t + D_t (eq. 15). - Net worth law of motion and aggregate net worth evolution (eqs. 16, 26–29). - Leverage relation: Q_t S_B;t = _t NW_t (eq. 20) with _t given by first-order conditions (eqs. 21–24). - Agency/incentive constraint: V_t ≥ (Q_t S_B;t) (eq. 18). - Bank capital shock BC_t follows AR(1): log(BC_t+1/BC) = _BC log(BC_t/BC) + ε_BC;t+1 (standard deviation _BC). - Macrofinancial accelerator: lending expands with higher bank net worth; declines in net worth amplify spreads and tighten borrowing constraints, inducing deleveraging and fire sales that depress asset values. - Monetary policy: Taylor rule (eq. 54) with persistence _r and weights _ on expected inflation and _y on output gap; monetary policy shock ε_r;t+1 with standard deviation _M. - Foreign borrowing shock modeled via disturbance to FL_t (eq. 7) with standard deviation _FB. - Asset price shock AP_t follows AR(1) with standard deviation _AP. ### Macroprudential policy design in the model - Macroprudential instrument: capital requirements implemented as a penalty for deviation of bank leverage from regulatory target. - Penalty enters net worth accumulation: NW_t = f(+)[Z_t + (1)Q_t]S_b;t R_t D_t-1 pen_f[ NW_t / (Q_t S_b;t) MP_t ] g BC_t (eq. 73). - MP_t evolves: MP_t = (1_MP)MP + (1_MP)(X_t X) + _MP MP_t-1 (eq. 74). - MP steady state set equal to steady-state leverage NW_t/(Q_t S_t); X_t is growth rate of output so positive X_t corresponds to countercyclical policy (capital requirements increase in good times). - Bank capital shock BC_t persists as AR(1) (eq. 75). ### Calibration highlights (quarterly basis, reflecting Emerging Asia) - Key calibrations and targets: - Discount factor = 0:99. - Steady-state shares: w_C = 0:8, w_I = 0:8, w_C = 0:8, w_I = 0:8. - Substitution elasticities: _C = 1:5, _C = 1:5, _I = 0:25, _I = 0:25. - Banking sector:  (survival) = 0:975 implying a survival rate of 10 years; parameters calibrated to hit an average credit spread of 100 basis points and a financial intermediaries leverage ratio of 4. - Selected parameter values (from Table 1): - 0:99;  37:67; C/Y 0:70%; I/Y 0:20; G/Y 0:10; 0:65;  0:069; _B 0:972; _B 0:384; _B 0:004; pen 0:25; _MP 0:5; _A 0:85; _BC 0:9; _FB 0:9; _AP 0:9; _r 0:5; _ 2; _y 0:5; etc. - Note: calibration follows Anand et al. (2010) and Batini et al. (2007) where applicable. ### Main simulation results — role of macroprudential policy in reducing procyclicality - Shocks considered: (i) foreign borrowing shock; (ii) bank capital shock; (iii) technology shock; (iv) monetary policy shock; (v) asset price shock. - General finding: - Countercyclical capital regulation (macroprudential policy) is a powerful tool that increases resilience, reduces volatility of banks' capital and leverage ratio, and dampens volatility in lending, investment, and real economy. - Selected mechanism responses: - Foreign borrowing shock: - Higher foreign borrowing expands future supply of capital, boosts investment demand, raises inflationary pressures and credit growth, appreciates real exchange rate, raises interest rates. - Macroprudential penalty on excessive leverage counteracts intermediary net worth build-up, reduces lending and investment booms. - Bank capital shock (negative): - Shock to bank capital (e.g., non-performing loans) magnifies through leverage: drop in net worth raises spread, tightens borrowing constraints, triggers fire sales, reduces asset values, amplifies fall in investment and output, and slows recovery via deleveraging. - Macroprudential framework reduces peaks in spreads and cushions the real impact. - Technology shock (positive): - Productivity gains lower inflation initially; policy rate can be lowered, real exchange rate may depreciate. - Countercyclical capital regulation lowers business cycle fluctuations but may work against monetary easing, creating a trade-off between macroeconomic and financial stability objectives. - Monetary tightening: - Contractionary monetary shock reduces asset prices, raises spread, cuts investment and activity; macroprudential policy moderates the fall in investment and inflation. - Asset price shock (positive): - Similar to technology shock in transmission except inflation increases in absence of productivity gains; macroprudential policy reduces volatility and overheating symptoms. ### Policy interactions — macroprudential and monetary policy - Four policy scenarios evaluated (weighting in rules from Table 2): - (i) Standard Taylor rule (policy rule eq. 54). - (ii) Taylor rule augmented with a weight on credit growth (credit growth coefficient set at 0:5). - (iii) Standard Taylor rule plus macroprudential policy. - (iv) Taylor rule with credit growth plus macroprudential policy (reference scenario). - Taylor rule parameterization (Table 2): - Taylor Rule: Lag interest rate 0:5; Inflation Rate 2; Output Gap 0:5. - Taylor Rule with Credit Growth: Lag interest rate 0:5; Inflation Rate 2; Output Gap 0:5; Credit Growth 0:5. - Welfare evaluation method: - Consumption-equivalent welfare loss computed via second-order approximation of household utility (Schmitt-GrohÈ and Uribe 2007 approach). - Welfare loss reported as fraction of steady-state consumption (percentage terms) needed to equate welfare under given policy to the reference scenario (augmented Taylor rule + macroprudential policy) for a one percent shock. - Welfare loss results (Table 3) — reported values: - Foreign Borrowing Shock: - Taylor Rule 0.352 - Taylor Rule with Credit Growth 0.268 - Taylor Rule and Macroprudential Policy 0.082 - Bank Capital Shock: - Taylor Rule 0.434 - Taylor Rule with Credit Growth 0.310 - Taylor Rule and Macroprudential Policy 0.104 - Technology Shock: - Taylor Rule 0.268 - Taylor Rule with Credit Growth 0.224 - Taylor Rule and Macroprudential Policy 0.072 - Asset Price Shock: - Taylor Rule 0.396 - Taylor Rule with Credit Growth 0.274 - Taylor Rule and Macroprudential Policy 0.094 - Interpretations and comparative magnitudes: - Welfare loss is larger for financial shocks; the bank capital shock produces the highest welfare loss (Taylor Rule 0.434) followed by the asset price shock (Taylor Rule 0.396). - Introduction of macroprudential policy markedly reduces welfare loss across shocks (e.g., foreign borrowing shock: 0.352 → 0.082). - The augmented Taylor rule with credit growth reduces welfare loss relative to the standard Taylor rule (e.g., foreign borrowing shock: 0.352 → 0.268), but gains are smaller than those from introducing macroprudential policy. - Example differences highlighted in the text: - For foreign borrowing shock: difference between standard Taylor rule and augmented Taylor rule is 0:84; when macroprudential policy is considered the difference becomes 0:270; the welfare loss difference when adding credit growth into a macroprudential framework is 0:082. ### Main policy conclusions and recommendations - Core recommendations: - Countercyclical macroprudential policies (capital requirements) can usefully complement monetary policy and are effective in reducing macroeconomic volatility and procyclicality of the financial system in Emerging Asia. - Combining a countercyclical capital requirement with a modified Taylor rule that places some weight on credit growth yields the best welfare outcomes in the model across a range of shocks. - Caveats and trade-offs: - Gains from countercyclical capital requirements are lower for technology shocks and can result in lower medium-term output; there is a potential trade-off between macroeconomic stabilization and financial stability objectives requiring judicial, country-tailored use of macroprudential tools. - The paper does not model direct controls on capital ináows or large-scale foreign exchange interventions; prior literature suggests those measures may be suboptimal even in models without optimizing banking sectors, and these policies are left for future research. - Practical implications for policymakers in Emerging Asia: - Maintain adequate bank capital buffers, avoid rapid credit growth that leads to non-performing loans, and monitor asset prices as an amplifier of business cycles. - Prefer macroprudential countercyclical capital regulation plus monetary policy tools (including consideration of credit growth in policy rules) over relying exclusively on targeting capital flows or large FX interventions. *IMF Working Paper content from the provided PDF content unit.* ### References ............................................................................................................. ### _wp14157 - References ............................................................................................................. ### Introduction and objectives - Develops an open economy DSGE model with an optimizing banking sector to assess: - (1) the impact of capital ináows on the economy and credit-asset price cycles; - (2) the monetary transmission mechanism in the presence of a banking sector and Önancial frictions; - (3) the potential role for macroprudential policies in maintaining macro-Önancial stability and their interactions with monetary policy. - Motivating context: - Central banks have a dual role in maintaining price and Önancial stability following the global Önancial crisis. - Policymakers in Emerging Asia face two interrelated challenges: (i) prevent capital áows from exacerbating macroeconomic overheating pressures and consequent ináation; and (ii) minimize the risk that prolonged easy Önancing conditions undermine Önancial stability. - Policy toolkit beyond monetary and macroprudential policy includes foreign exchange market intervention, currency appreciation, Öncal adjustment, and structural reforms. ### Background and empirical stylized facts - Capital áows to Emerging Asia have been highly volatile: boom from 2006Q4 to 2007Q3, sharp decline during the Global Financial Crisis, upswing from 2009Q3 to 2011Q3; after May 2013 portfolio áows saw a sharp reversal following Fed tapering announcement. - Flows composition and implications: - Flows to non-China Asia dominated by portfolio and other investment (mainly bank loans); both are volatile and sensitive to external financial conditions. - Empirical VAR impulse responses (EM Asia): - A 1 percentage point of GDP increase in equity áows: consumption peak response ≈ 0.4 percentage points of quarter-on-quarter annualized growth; investment peak response > three times that amount. - Investment growth responds positively but short-lived to debt áows (wears off after two quarters). - Main transmission channels of non-FDI capital ináows: reduction in real cost of equity and expansion of private credit. - Real cost of equity decline persists even six quarters after a positive equity ináow shock. - Risks associated with rapid credit growth: asset quality deterioration, bank capital pressures, higher incidence of crises during episodes of rapid credit growth. ### Model structure and key mechanisms - Model type: New Keynesian open-economy DSGE with an optimizing banking sector (building on Gertler and Karadi 2011; Gertler and Kiyotaki 2010) and countercyclical capital requirement (Angelini et al. 2010). - Agents: households (fraction $ bankers and fraction 1$ workers), banks (agency problem, finite survival probability ), firms (capital producers, goods producers, retailers). - Banking sector: - Balance sheet: Q_t S_B;t = NW_t + D_t (eq. 15). - Net worth law of motion and aggregate net worth evolution (eqs. 16, 26–29). - Leverage relation: Q_t S_B;t = _t NW_t (eq. 20) with _t given by first-order conditions (eqs. 21–24). - Agency/incentive constraint: V_t ≥ (Q_t S_B;t) (eq. 18). - Bank capital shock BC_t follows AR(1): log(BC_t+1/BC) = _BC log(BC_t/BC) + ε_BC;t+1 (standard deviation _BC). - Macrofinancial accelerator: lending expands with higher bank net worth; declines in net worth amplify spreads and tighten borrowing constraints, inducing deleveraging and fire sales that depress asset values. - Monetary policy: Taylor rule (eq. 54) with persistence _r and weights _ on expected inflation and _y on output gap; monetary policy shock ε_r;t+1 with standard deviation _M. - Foreign borrowing shock modeled via disturbance to FL_t (eq. 7) with standard deviation _FB. - Asset price shock AP_t follows AR(1) with standard deviation _AP. ### Macroprudential policy design in the model - Macroprudential instrument: capital requirements implemented as a penalty for deviation of bank leverage from regulatory target. - Penalty enters net worth accumulation: NW_t = f(+)[Z_t + (1)Q_t]S_b;t R_t D_t-1 pen_f[ NW_t / (Q_t S_b;t) MP_t ] g BC_t (eq. 73). - MP_t evolves: MP_t = (1_MP)MP + (1_MP)(X_t X) + _MP MP_t-1 (eq. 74). - MP steady state set equal to steady-state leverage NW_t/(Q_t S_t); X_t is growth rate of output so positive X_t corresponds to countercyclical policy (capital requirements increase in good times). - Bank capital shock BC_t persists as AR(1) (eq. 75). ### Calibration highlights (quarterly basis, reflecting Emerging Asia) - Key calibrations and targets: - Discount factor = 0:99. - Steady-state shares: w_C = 0:8, w_I = 0:8, w_C = 0:8, w_I = 0:8. - Substitution elasticities: _C = 1:5, _C = 1:5, _I = 0:25, _I = 0:25. - Banking sector:  (survival) = 0:975 implying a survival rate of 10 years; parameters calibrated to hit an average credit spread of 100 basis points and a financial intermediaries leverage ratio of 4. - Selected parameter values (from Table 1): 0:99;  37:67; C/Y 0:70%; I/Y 0:20; G/Y 0:10; 0:65;  0:069; _B 0:972; _B 0:384; _B 0:004; pen 0:25; _MP 0:5; _A 0:85; _BC 0:9; _FB 0:9; _AP 0:9; _r 0:5; _ 2; _y 0:5; etc. (Table 1 provides the full list of parameter values.) - Note: calibration follows Anand et al. (2010) and Batini et al. (2007) where applicable. ### Main simulation results — role of macroprudential policy in reducing procyclicality - Shocks considered: (i) foreign borrowing shock; (ii) bank capital shock; (iii) technology shock; (iv) monetary policy shock; (v) asset price shock. - General finding: countercyclical capital regulation (macroprudential policy) is a powerful tool that increases resilience, reduces volatility of banks' capital and leverage ratio, and dampens volatility in lending, investment, and real economy. - Selected mechanism responses (qualitative and model-implied): - Foreign borrowing shock: - Higher foreign borrowing expands future supply of capital, boosts investment demand, raises inflationary pressures and credit growth, appreciates real exchange rate, raises interest rates. - Macroprudential penalty on excessive leverage counteracts intermediary net worth build-up, reduces lending and investment booms. - Bank capital shock (negative): - Shock to bank capital (e.g., non-performing loans) magnifies through leverage: drop in net worth raises spread, tightens borrowing constraints, triggers fire sales, reduces asset values, amplifies fall in investment and output, and slows recovery via deleveraging. - Macroprudential framework reduces peaks in spreads and cushions the real impact. - Technology shock (positive): - Productivity gains lower inflation initially; policy rate can be lowered, real exchange rate may depreciate. - Countercyclical capital regulation lowers business cycle fluctuations but may work against monetary easing, creating a trade-off between macroeconomic and financial stability objectives. - Monetary tightening: - Contractionary monetary shock reduces asset prices, raises spread, cuts investment and activity; macroprudential policy moderates the fall in investment and inflation. - Asset price shock (positive): - Similar to technology shock in transmission except inflation increases in absence of productivity gains; macroprudential policy reduces volatility and overheating symptoms. ### Policy interactions — macroprudential and monetary policy - Four policy scenarios evaluated (weighting in rules from Table 2): - (i) Standard Taylor rule (policy rule eq. 54). - (ii) Taylor rule augmented with a weight on credit growth (credit growth coefficient set at 0:5). - (iii) Standard Taylor rule plus macroprudential policy. - (iv) Taylor rule with credit growth plus macroprudential policy (reference scenario). - Taylor rule parameterization (Table 2): - Taylor Rule: Lag interest rate 0:5; Inflation Rate 2; Output Gap 0:5. - Taylor Rule with Credit Growth: Lag interest rate 0:5; Inflation Rate 2; Output Gap 0:5; Credit Growth 0:5. - Welfare evaluation method: - Consumption-equivalent welfare loss computed via second-order approximation of household utility (Schmitt-GrohÈ and Uribe 2007 approach). - Welfare loss reported as fraction of steady-state consumption (percentage terms) needed to equate welfare under given policy to the reference scenario (augmented Taylor rule + macroprudential policy) for a one percent shock. - Welfare loss results (Table 3) — reported values: - Foreign Borrowing Shock: - Taylor Rule 0.352 - Taylor Rule with Credit Growth 0.268 - Taylor Rule and Macroprudential Policy 0.082 - Bank Capital Shock: - Taylor Rule 0.434 - Taylor Rule with Credit Growth 0.310 - Taylor Rule and Macroprudential Policy 0.104 - Technology Shock: - Taylor Rule 0.268 - Taylor Rule with Credit Growth 0.224 - Taylor Rule and Macroprudential Policy 0.072 - Asset Price Shock: - Taylor Rule 0.396 - Taylor Rule with Credit Growth 0.274 - Taylor Rule and Macroprudential Policy 0.094 - Interpretations and comparative magnitudes: - Welfare loss is larger for financial shocks; the bank capital shock produces the highest welfare loss (Taylor Rule 0.434) followed by the asset price shock (Taylor Rule 0.396). - Introduction of macroprudential policy markedly reduces welfare loss across shocks (e.g., foreign borrowing shock: 0.352 → 0.082). - The augmented Taylor rule with credit growth reduces welfare loss relative to the standard Taylor rule (e.g., foreign borrowing shock: 0.352 → 0.268), but gains are smaller than those from introducing macroprudential policy. - Example differences highlighted in the text: - For foreign borrowing shock: difference between standard Taylor rule and augmented Taylor rule is 0:84 (text states this value); when macroprudential policy is considered the difference becomes 0:270; the welfare loss difference when adding credit growth into a macroprudential framework is 0:082. ### Main policy conclusions and recommendations - Countercyclical macroprudential policies (capital requirements) can usefully complement monetary policy and are effective in reducing macroeconomic volatility and procyclicality of the financial system in Emerging Asia. - Combining a countercyclical capital requirement with a modified Taylor rule that places some weight on credit growth yields the best welfare outcomes in the model across a range of shocks. - Caveats and trade-offs: - Gains from countercyclical capital requirements are lower for technology shocks and can result in lower medium-term output; there is a potential trade-off between macroeconomic stabilization and financial stability objectives requiring judicial, country-tailored use of macroprudential tools. - The paper does not model direct controls on capital ináows or large-scale foreign exchange interventions; prior literature suggests those measures may be suboptimal even in models without optimizing banking sectors, and these policies are left for future research. - Practical implications for policymakers in Emerging Asia: - Maintain adequate bank capital buffers, avoid rapid credit growth that leads to non-performing loans, and monitor asset prices as an amplifier of business cycles. - Prefer macroprudential countercyclical capital regulation plus monetary policy tools (including consideration of credit growth in policy rules) over relying exclusively on targeting capital flows or large FX interventions. *Italicized source attribution: IMF Working Paper content from the provided PDF content unit.* ### References ### References ### Works cited - Angelini P., Neri S. and Panetta F.,2011. "Monetary and macroprudential policies," Temi di discus- sione (Economic working papers) 801, Bank of Italy, Economic Research Department. - Anand R., Peiris S. J., and Saxegaard M.,2010, ìAn Estimated Model with MacroÖanncial Linkages for India,îIMF Working Paper No. 10/21, International Monetary Fund - Batini N., Levine P., and Pearlman J.,2007. "Monetary Rules in Emerging Economies with Financial Market Imperfections," NBER Chapters, in: International Dimensions of Monetary Policy, pages 251-311 National Bureau of Economic Research, Inc. - BeneöJ., Otker-Robe I., and V·vra D.,2009, ìModelling with Macro-Financial Linkages: Credit and Policy Shocks in Emerging Markets,î IMF Working Paper No. 09/123, International Monetary Fund. - Benigno P.,2009. "Price Stability with Imperfect Financial Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 121-149, 02. - Bank of International Settlements,2010, "Financial system and macroeconomic resilience: revisited". BIS papers N. 53. - Schindler M., Papageorgiou C., Weisfeld H., Pattillo C. A., Spatafora N, Berg A.,2011. "Global Shocks and their Impact on Low-Income Countries: Lessons from theGlobal Financial Crisis," IMF Working Papers 11/27, International Monetary Fund. - Bernanke B., Gertler M. and Gilchrist S.,1999, ìThe Financial Accelerator in a Quantitative Business Cycle Framework,î Handbook of Macroeconomics, Vol. 1C, Chapter 21, ed. By J.B. Taylor and M. Woodford (Amsterdam: North-Holland). - Christiano L., Motto R. and Rostagno M.,2010. "Financial factors in economic áuctuations," Working Paper Series 1192, European Central Bank. - Curdia V., and Woodford M.,2010. "Credit Spreads and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 3-35, 09. - Elekdag, S., and Tchakarov I.,2007, ìBalance Sheets, Exchange Rate Policy, and Welfare,îJournal of Economic Dynamics & Control, Vol. 31, pp. 3986-4015. - Committee on the Global Financial System (CGFS),2010b, ìMacroprudential Instruments and Frame- works: A Stocktaking of Issues and Experiences,îCGFS Paper No. 38. - Craig R.S., Davis E.P and Pascual A.G.,2006, ìSources of Procyclicality in East Asian Financial Systemsî, in eds. Gerlach, S and Gruenwald, P, Procyclicality of Financial Systems in Asia, International Monetary Fund. - Crowe C., DellíAriccia G., Igan D. and Rabanal P.,2011, ìPolicies for MacroÖnancial Stability: Op- tions to Deal with Real Estate Booms,îIMF Sta§ Discussion Note, - GalÌ J. and Monacelli T.,2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Wiley Blackwell, vol. 72(3), pages 707-734, 07. - Gertler M., Gilchrist S. and Natalucci F.,2007, ìExternal Constraints on Monetary Policy and the Financial Accelerator,îJournal of Money, Credit and Banking, Vol. 39, pp. 295-330 - Gertler, Mark and Kiyotaki, Nobuhiro,2010, ìFinancial Intermediation and Credit Policy in Busi- ness Cycle Analysisîin Handbook of Monetary Economics by Benjamin M. Friedman & Michael Woodford - Gertler M., Nobuhiro K., and Queralto A.,2011ìFinancial Crises, Bank Risk Exposure and Govern- ment Financial Policy", Journal of Monetary Economics (forthcoming). - Goodfriend M.and McCallum B. T.,2007. "Banking and interest rates in monetary policy analysis: A quantitative exploration," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1480-1507, July. - Maino R., Barnett S.,2011, Macroprudential Framework in Asia, I.M.F. - Matteo Iacoviello,2005,. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June. - International Monetary Fund,2011a, "Macroprudential Policy, An Organizing Framework" (SM/11/54, March), International Monetary Fund - International Monetary Fund,2011b, "Global Financial Stability Report, World Economic and Finan- cial Surveys" (Washington: International Monetary Fund, April). - International Monetary Fund,2011c, "Recent Experiences in Managing Capital Ináows, Cross-Cutting Themes and Possible Guidelines" (February). - Kannan P., Rabanal P. and Scott A.,2009."Monetary and Macroprudential Policy Rules in a Model with House Price Booms," IMF Working Papers 09/251, International Monetary Fund. - Kashyap, K. An, Richard Berner, Charles A. Goodhart,2011,îThe Macroprudential Toolkitî IMF Economic Review, forthcoming - Kiyotaki, N. and Moore, J.,1997,. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April. - NíDiaye, P.,2009,. "Countercyclical Macro Prudential Policies in a Supporting Role to Monetary Policy". IMF Working Paper WP/09/257. - Nier, E. W.,2009, ìFinancial Stability Frameworks and the Role of Central Banks: Lessons from the CrisisîIMF working paper WP/09/70. - Obstfeld M. and Rogo§ K.,1995,. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-60, June. - Unsal D. F.,2013, "Capital Flows and Financial Stability: Monetary Policy and Macroprudential Responses," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 233-285, March. - ViÒals J.,2010, ìTowards a Safer Global Financial System,î speech delivered at the Center For Financial Studies at the Goethe Universit‰t, Frankfurt, November. *Source: _wp14157 - References* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14157.pdf_