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Financial Stability and Macroprudential Policy: A Structural Model Evaluation of an Emerging Economy

Author

Listed:
  • Horacio Aguirre

    () (Central Bank of Argentina)

  • Emilio Blanco

    () (Central Bank of Argentina)

Abstract

We build a small structural open economy model, augmented to depict the credit market and interest rate spreads (distinguishing by credit to Örms and families); monetary policy with sterilized intervention in the foreign exchange market; and macroprudential policy as capital requirements. We estimate the model using Bayesian techniques with quarterly data for Argentina in 2003-2011; it can be extended to other emerging economies, allowing for comparative empirical analysis. Results indicate that shocks to lending rates and spread weigh on macroeconomic variables; likewise, the credit market is a§ected by macroeconomic shocks. Capital requirements, beyond their strictly prudential role, appear to have contributed to lower volatility of key variables such as output, prices, credit and interest rates. The interaction of monetary policy, foreign exchange intervention and prudential tools appears to be synergic: counting on a larger set of tools helps dampen volatility of both macroeconomic and Önancial system variables, taking into account the type of shocks faced during the estimation period.

Suggested Citation

  • Horacio Aguirre & Emilio Blanco, 2016. "Financial Stability and Macroprudential Policy: A Structural Model Evaluation of an Emerging Economy," BCRA Working Paper Series 201671, Central Bank of Argentina, Economic Research Department.
  • Handle: RePEc:bcr:wpaper:201671
    as

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    File URL: http://www.bcra.gov.ar/Pdfs/Investigaciones/WP_2016_71i.pdf
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    References listed on IDEAS

    as
    1. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
    2. Stephen G. Cecchetti & Marion Kohler, 2014. "When Capital Adequacy and Interest Rate Policy Are Substitutes (And When They Are Not)," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 205-231, September.
    3. Gabriele Galati & Richhild Moessner, 2013. "Macroprudential Policy – A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 27(5), pages 846-878, December.
    4. Fabia Carvalho & Fabia A. de Carvalho & Silvio Michael de Azevedo Costa & Marcos Ribeiro de Castro, 2013. "Traditional and matter-of-fact financial frictions in a DSGE model for Brazil: the role of macroprudential instruments and monetary policy," EcoMod2013 5145, EcoMod.
    5. International Monetary Fund, 2011. "Macroprudential Policy; What Instruments and How to Use them? Lessons From Country Experiences," IMF Working Papers 11/238, International Monetary Fund.
    6. Angeloni, Ignazio & Faia, Ester, 2013. "Capital regulation and monetary policy with fragile banks," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 311-324.
    7. Pedro Elosegui & Guillermo Escudé & Lorena Garegnani & Juan Martín Sotes Paladino, 2007. "Un modelo económico pequeño para Argentina," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(3), pages 265-303, julio-sep.
    8. Ricardo Bebczuk & Tamara Burdisso & Jorge Carrera & Máximo Sangiácomo, 2011. "A New Look into Credit Procyclicality: International Panel Evidence," BCRA Working Paper Series 201155, Central Bank of Argentina, Economic Research Department.
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    More about this item

    Keywords

    macroprudential policy; semi-structural model; Bayesian estimation;

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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