Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?
IMF Working Papers, June 26, 2020
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Bibliographic details
- Authors: Katharina Bergant, Francesco Grigoli, Niels-Jakob H Hansen, Damiano Sandri
- Published: June 26, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513547763.001
Summary findings
- Macroprudential regulation can considerably dampen the impact of global financial shocks on emerging markets.
- A tighter level of regulation reduces the sensitivity of GDP growth to VIX movements and capital flow shocks.
- A broad set of macroprudential tools contribute to this result, including measures targeting:
- bank capital and liquidity,
- foreign currency mismatches,
- risky forms of credit.
- Tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks; this is identified as an important channel through which macroprudential regulation enhances macroeconomic stability.
- The study finds no evidence that stricter capital controls provide similar gains.
Analytical themes and mechanisms
- Transmission channels analyzed:
- Sensitivity of real GDP and GDP growth to global volatility measures (ln VIX) and capital flow shocks.
- Interaction between macroprudential policy tightness and monetary policy responses (policy rate, monetary policy shocks).
- Scope of macroprudential tools considered:
- Tools targeting bank capital and liquidity.
- Measures addressing foreign currency mismatches.
- Restrictions or regulations on risky forms of credit.
- Comparison with capital controls:
- Macroprudential regulation shows dampening benefits absent for capital controls in the analysis.
Key metadata and identifiers
- Authors: Katharina Bergant, Francesco Grigoli, Niels-Jakob H Hansen, Damiano Sandri
- Date: June 26, 2020
- Series: Working Paper No. 2020/106
- Issue: 106
- Volume: 2020
- Pages: 41
- DOI: https://doi.org/10.5089/9781513547763.001
- ISBN: 9781513547763
- ISSN: 1018-5941
Subject tags and keywords (as provided)
- Subjects: Balance of payments, Capital controls, Capital flows, Capital outflows, Central bank policy rate, Emerging and frontier financial markets, Financial markets, Financial services
- Keywords: capital control, Capital controls, Capital flows, Capital outflows, Central bank policy rate, dampening effect, Emerging and frontier financial markets, GDP growth, Global, ln VIX, Macroprudential policies, monetary policy, monetary policy response, monetary policy shock, net capital, net outflow, output gap, policy rate, real GDP, trend GDP, WP
IMF Working Papers — “Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?” (Working Paper No. 2020/106, June 26, 2020).
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