Friend or Foe? Cross-Border Linkages, Contagious Banking Crises, and “Coordinated” Macroprudential Policies

By Seung M Choi, Laura E. Kodres, Jing Lu

January 23, 2018

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Seung M Choi, Laura E. Kodres, and Jing Lu. Friend or Foe? Cross-Border Linkages, Contagious Banking Crises, and “Coordinated” Macroprudential Policies, (USA: International Monetary Fund, 2018) accessed July 14, 2025

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper examines whether the coordinated use of macroprudential policies can help lessen the incidence of banking crises. It is well-known that rapid domestic credit growth and house price growth positively influence the chances of a banking crisis. As well, a crisis in other countries with high trade and financial linkages raises the crisis probability. However, whether such “contagion effects” can operate to reduce crisis probabilities when highly linked countries execute macroprudential policies together has not been fully explored. A dataset documenting countries’ use of macroprudential tools suggests that a “coordinated” implementation of macroprudential policies across highly-linked countries can help to stem the risks of widespread banking crises, although this positive effect may take some time to materialize.

Subject: Banking crises, Credit, Financial crises, Financial sector policy and analysis, Housing prices, Macroprudential policy, Macroprudential policy instruments, Money, Prices

Keywords: Banking crises, Banking crisis, Break, Center, Credit, Credit growth, Crisis probability, Financial Crisis, Financial Linkages, Global, House price growth, Housing prices, Loan recipient, Macroprudential Policies, Macroprudential policy, Macroprudential policy instruments, Trade Linkages, Trade partner, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/009
Stock No:

WPIEA2018009
ISBN:

9781484338476
ISSN:

1018-5941

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