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Adapting Macropudential Policies to Global Liquidity Conditions

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  • Hyun Song Shin
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    Abstract

    This paper outlines an approach to macroprudential policy for open emerging economies that emphasizes banking sector balance sheet management as the key driver of risk premiums, capital flows and vulnerabilities to sudden reversals in global liquidity conditions. This paper argues for the usefulness of monitoring the "non-core liabilities" of the banking sector as a signal of lending standards and potential vulnerability of the financial system to shocks. The paper presents a taxonomy of macroprudential tools, ranging from orthodox tools for bank capital regulation to more novel "liabilities-side" tools, such as the levy on non-core liabilities recently introduced by South Korea.

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    File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc671.pdf
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    Bibliographic Info

    Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 671.

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    Date of creation: Jul 2012
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    Handle: RePEc:chb:bcchwp:671

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    1. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
    2. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May.
    3. Jonathan David Ostry & Mahvash Saeed Qureshi & Karl Friedrich Habermeier & Dennis B. S. Reinhardt & Marcos Chamon & Atish R. Ghosh, 2010. "Capital Inflows: The Role of Controls," IMF Staff Position Notes 2010/04, International Monetary Fund.
    4. Friedman, Benjamin M, 1988. "Monetary Policy without Quantity Variables," American Economic Review, American Economic Association, vol. 78(2), pages 440-45, May.
    5. Shin, Hyun Song, 2010. "Risk and Liquidity," OUP Catalogue, Oxford University Press, number 9780199546367.
    6. Claudio Borio & William English & Andrew Filardo, 2003. "A tale of two perspectives: old or new challenges for monetary policy?," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 1-59 Bank for International Settlements.
    7. Delis, Manthos D & Kouretas, Georgios, 2010. "Interest rates and bank risk-taking," MPRA Paper 20132, University Library of Munich, Germany.
    8. Guonan Ma & RobertN McCauley, 2008. "Efficacy Of China'S Capital Controls: Evidence From Price And Flow Data," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 104-123, 02.
    9. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
    10. De Gregorio, Jose & Edwards, Sebastian & Valdes, Rodrigo O., 2000. "Controls on capital inflows: do they work?," Journal of Development Economics, Elsevier, vol. 63(1), pages 59-83, October.
    11. Cardenas, Mauricio & Barrera, Felipe, 1997. "On the effectiveness of capital controls: The experience of Colombia during the 1990s," Journal of Development Economics, Elsevier, vol. 54(1), pages 27-57, October.
    12. Nicolas E. Magud & Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "Capital Controls: Myth and Reality - A Portfolio Balance Approach," NBER Working Papers 16805, National Bureau of Economic Research, Inc.
    13. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
    14. Carmen M. Reinhart & Vincent R. Reinhart, 2010. "After the Fall," NBER Working Papers 16334, National Bureau of Economic Research, Inc.
    15. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking," BIS Quarterly Review, Bank for International Settlements, March.
    16. Claudio E. V. Borio & Philip Lowe, 2004. "Securing sustainable price stability: should credit come back from the wilderness?," BIS Working Papers 157, Bank for International Settlements.
    17. Dupor, Bill, 2005. "Stabilizing non-fundamental asset price movements under discretion and limited information," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 727-747, May.
    18. Gete, Pedro, 2009. "Housing Markets and Current Account Dynamics," MPRA Paper 20957, University Library of Munich, Germany, revised 24 Feb 2010.
    19. Ioannidou, V. & Ongena, S. & Peydro, J.L., 2009. "Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment," Discussion Paper 2009-31 S, Tilburg University, Center for Economic Research.
    20. Masazumi Hattori & Hyun Song Shin & Wataru Takahashi, 2009. "A Financial System Perspective on Japan's Experience in the Late 1980s," IMES Discussion Paper Series 09-E-19, Institute for Monetary and Economic Studies, Bank of Japan.
    21. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
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