Capital Flows, Financial Intermediation and Macroprudential Policies

August 21, 2014

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper develops an open-economy DSGE model with an optimizing banking sector to assess the role of capital flows, macro-financial linkages, and macroprudential policies in emerging Asia. The key result is that macro-prudential measures can usefully complement monetary policy. Countercyclical macroprudential polices can help reduce macroeconomic volatility and enhance welfare. The results also demonstrate the importance of capital flows and financial stability for business cycle fluctuations as well as the role of supply side financial accelerator effects in the amplification and propagation of shocks.

Subject: Balance of payments, Banking, Capital adequacy requirements, Capital flows, Capital inflows, Credit, Financial regulation and supervision, Financial sector policy and analysis, Macroprudential policy, Money

Keywords: Asia and Pacific, asset price shock, bank capital shock, Capital adequacy requirements, Capital flows, Capital inflows, capital producer, capital regulation, capital requirement, countercyclical capital rule, Credit, Financial Frictions, Global, Macroprudential policy, Monetary Policy, WP

Pages:
31
Volume:
2014
DOI:
https://doi.org/10.5089/9781498365659.001
Issue:
157
Series:
Working Paper No. 2014/157
Stock No:
WPIEA2014157
ISBN:
9781498365659
ISSN:
1018-5941

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