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Dealing with the Challenges of Macro Financial Linkages in Emerging Markets

Author

Listed:
  • Canuto, Otaviano

    (World Bank)

  • Ghosh, Swati

    (World Bank)

Abstract

The 2008 financial crisis has emphasized the importance of macro financial linkages. In the financial sector, attention is now focusing on macro prudential regulations that are geared toward the stability of the financial system as a whole. In the macro arena, the recognition that price stability was not sufficient to guarantee macroeconomic stability and that financial imbalances developed despite low inflation and small output gaps has highlighted the need for additional tools (macro prudential policies) to complement monetary policy in countercyclical management. Emerging markets (EMs) face different conditions and have key structural features that can have a bearing on the relevance and efficacy of policy measures. Drawing on Canuto and Ghosh (2013), this note discusses the challenges of dealing with macro financial linkages and explores the policy toolkit available for dealing with systemic risks, particularly in the context of EMs.

Suggested Citation

  • Canuto, Otaviano & Ghosh, Swati, 2013. "Dealing with the Challenges of Macro Financial Linkages in Emerging Markets," World Bank - Economic Premise, The World Bank, issue 129, pages 1-8, November.
    • Handle: RePEc:wbk:prmecp:ep129
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    1. Claessens, Stijn & Ghosh, Swati R. & Mihet, Roxana, 2013. "Macro-prudential policies to mitigate financial system vulnerabilities," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 153-185.
    2. Canuto, Otaviano, 2011. "How Complementary Are Prudential Regulation and Monetary Policy?," World Bank - Economic Premise, The World Bank, issue 60, pages 1-7, June.
    3. Claudio Borio & William R. White, 2003. "Whither monetary and financial stability : the implications of evolving policy regimes," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-211.
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    Cited by:

    1. Hakan Kara, 2016. "A brief assessment of Turkey's macroprudential policy approach : 2011–2015," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 16(3), pages 85-92.
    2. Cerutti, Eugenio & Claessens, Stijn & Puy, Damien, 2019. "Push factors and capital flows to emerging markets: why knowing your lender matters more than fundamentals," Journal of International Economics, Elsevier, vol. 119(C), pages 133-149.
    3. Philip R Lane, 2014. "External Funding and Long-term Investment," RBA Annual Conference Volume (Discontinued), in: Alexandra Heath & Matthew Read (ed.),Financial Flows and Infrastructure Financing, Reserve Bank of Australia.
    4. Dijkman,Miquel, 2015. "Monitoring financial stability in developing and emerging economies : practical guidance for conducting macroprudential analysis," Policy Research Working Paper Series 7248, The World Bank.
    5. Catão, Luís A.V. & te Kaat, Daniel Marcel, 2021. "Capital account liberalization and the composition of bank liabilities," Journal of International Money and Finance, Elsevier, vol. 116(C).
    6. Saini, Seema & Ahmad, Wasim & Bekiros, Stelios, 2021. "Understanding the credit cycle and business cycle dynamics in India," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 988-1006.
    7. Michel Alexandre & Gilberto Tadeu Lima, 2020. "Combining monetary policy and prudential regulation: an agent-based modeling approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(2), pages 385-411, April.
    8. Kaelo Mpho Ntwaepelo, 2021. "The Effects of Macroprudential and Monetary Policy Shocks in BRICS economies," Economics Discussion Papers em-dp2021-20, Department of Economics, University of Reading.
    9. Hakan Kara, 2016. "Turkey's experience with macroprudential policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential policy, volume 86, pages 123-139, Bank for International Settlements.
    10. Canuto Otaviano, 2023. "Capital flows and emerging market economies since the global financial crisis," Chapters, in: Aleksandr V. Gevorkyan (ed.), Foreign Exchange Constraint and Developing Economies, chapter 10, pages 208-222, Edward Elgar Publishing.
    11. Claessens, Stijn & Ghosh, Swati R. & Mihet, Roxana, 2013. "Macro-prudential policies to mitigate financial system vulnerabilities," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 153-185.
    12. Pagliari, Maria Sole & Ahmed Hannan, Swarnali, 2024. "The volatility of capital flows in emerging markets: Measures and determinants," Journal of International Money and Finance, Elsevier, vol. 145(C).
    13. Otaviano Canuto & Bruno Saraiva, 2025. "BRICS in Times of Tectonic Shifts," Research papers & Policy papers on Economic Trends and Policies 2510, Policy Center for the New South.
    14. Ida-Maria Weirsøe Fallesen, 2015. "The Challenges of the EU Banking Union - will it succeed in dealing with the next financial crisis?," Bruges European Economic Policy Briefings 36, European Economic Studies Department, College of Europe.
    15. Shesadri Banerjee & Jayanthi K. Anand & Shashanka Bhide, 2021. "Estimation of Macro-financial Linkages for the Indian Economy," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 20(1), pages 7-47, April.
    16. International Monetary Fund, 2015. "Morocco: The Sub-Saharan Expansion of Moroccan Banks: Challenges and Opportunities," IMF Staff Country Reports 2015/106, International Monetary Fund.
    17. Abdulrahman Alrabiah & Steve Drew, 2020. "Proactive Management of Regulatory Policy Ripple Effects via a Computational Hierarchical Change Management Structure," Risks, MDPI, vol. 8(2), pages 1-29, May.

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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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