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Policymaking from a "macroprudential" perspective in emerging market economies

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  • Ramon Moreno

Abstract

Recurrent capital inflows pose important challenges for authorities in emerging market economies seeking to preserve financial stability. Raising interest rates to dampen imbalances that could arise from capital flows can also attract more capital inflows and accentuate appreciation pressures. For this reason authorities have used a number of instruments to mitigate the effects of capital flows, all with financial stability implications. Many of these instruments (eg reserve requirements) may have been used for other purposes but the global financial crisis has raised interest in examining them from a financial stability, or "macroprudential" perspective. This paper reviews some of these instruments, drawing in part on material provided by central banks to the BIS. The instruments include foreign exchange market intervention and foreign reserve accumulation; measures to strengthen bank balance sheets and capital and measures to maintain the quality of credit or to ifnluence credit growth or allocation, and capital controls. Certain implementation issues are also discussed, including signals to respond to, timing of prudential measures and procyclicality and effectiveness and calibration. An unresolved question is how the instruments described are to be used in conjunction with interest rate policy. Over the medium term, these instruments raise concerns because they may impair the development of the financial system.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 336.

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Length: 24 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:bis:biswps:336

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Keywords: capital flows; monetary policy; macroprudential;

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References

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  1. Celine Gauthier & Alfred Lehar & Moez Souissi, 2010. "Macroprudential Regulation and Systemic Capital Requirements," Working Papers, Bank of Canada 10-4, Bank of Canada.
  2. Hernando Vargas Herrera & Yanneth R Betancourt & Carlos Varela & Norberto Rodriguez, 2011. "Effects of reserve requirements in an inflation targeting regime: the case of Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), The global crisis and financial intermediation in emerging market economies, volume 54, pages 133-169 Bank for International Settlements.
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Cited by:
  1. Ren, Haocong, 2011. "Countercyclical financial regulation," Policy Research Working Paper Series 5823, The World Bank.
  2. World Bank, 2011. "Global Economic Prospects, Volume 3, June 2011 : Maintaining Progress Amid Turmoil," World Bank Publications, The World Bank, number 12103, August.
  3. repec:wbk:wbpubs:12098 is not listed on IDEAS
  4. Serge Jeanneau, 2011. "Central bank governance and financial stability: issues of potential relevance to Africa," BIS Papers chapters, in: Bank for International Settlements (ed.), Central banking in Africa: prospects in a changing world, volume 56, pages 21-36 Bank for International Settlements.
  5. Jan Frait & Zlatuse Komarkova, 2011. "Financial Stability, Systemic Risk and Macroprudential Policy," Occasional Publications - Chapters in Edited Volumes, Czech National Bank, Research Department, in: CNB Financial Stability Report 2010/2011, chapter 0, pages 96-111 Czech National Bank, Research Department.
  6. Choy, Marylin & Chang, Giancarlo, 2014. "Medidas Macroprudenciales aplicadas en el Perú," Working Papers, Banco Central de Reserva del Perú 2014-007, Banco Central de Reserva del Perú.

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