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Risky Banks and Macroprudential Policy for Emerging Economies

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  • Nuguer Victoria
  • Cuadra Gabriel

Abstract

We develop a two-country DSGE model with global banks to analyze the role of cross-border banking flows on the transmission of a quality of capital shock in the United States to emerging market economies (EMEs). Banks face a moral hazard problem for borrowing from households. EME's banks might be risky: they can also be constrained to borrow from U.S. banks. A negative quality of capital shock in the United States generates a global financial crisis. EME's macroprudential policy that targets non-core liabilities makes the domestic economy resilient to the volatility of cross-border banking flows and makes EME's households better-off.

Suggested Citation

  • Nuguer Victoria & Cuadra Gabriel, 2016. "Risky Banks and Macroprudential Policy for Emerging Economies," Working Papers 2016-06, Banco de México.
  • Handle: RePEc:bdm:wpaper:2016-06
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    Cited by:

    1. Bernardo Morais & José‐Luis Peydró & Jessica Roldán‐Peña & Claudia Ruiz‐Ortega, 2019. "The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach‐for‐Yield, and Real Effects," Journal of Finance, American Finance Association, vol. 74(1), pages 55-90, February.
    2. Shigeto Kitano & Kenya Takaku, 2017. "Capital Controls and Financial Frictions in a Small Open Economy," Open Economies Review, Springer, vol. 28(4), pages 761-793, September.
    3. Ag�nor, Pierre-Richard & Gambacorta, Leonardo & Kharroubi, Enisse & Lombardo, Giovanni & Pereira da Silva, Luiz A., 2017. "The International Dimensions of Macroprudential Policies," CEPR Discussion Papers 12108, C.E.P.R. Discussion Papers.
    4. Pierre-Richard Agénor & Pengfei Jia, 2017. "Macroprudential Policy Coordination in a Currency Union'," Centre for Growth and Business Cycle Research Discussion Paper Series 235, Economics, The Univeristy of Manchester.
    5. Pierre-Richard Agénor & Luiz Awazu Pereira da Silva, 2019. "Global Banking, Financial Spillovers, and Macroprudential Policy Coordination," BIS Working Papers 764, Bank for International Settlements.
    6. Alan Finkelstein-Shapiro & Victoria Nuguer, 2019. "Domestic Financial Participation and Financial Policies in Emerging Economies," 2019 Meeting Papers 1479, Society for Economic Dynamics.
    7. Shigeto Kitano & Kenya Takaku, 2017. "Capital Controls, Macroprudential Regulation,and the Bank Balance Sheet Channel," Discussion Paper Series DP2017-18, Research Institute for Economics & Business Administration, Kobe University, revised Jan 2019.
    8. Epstein, Brendan & Finkelstein Shapiro, Alan & Gonzalez Gomez, Andres, 2018. "Global Financial Risk, Domestic Financial Access, and Unemployment Dynamics," MPRA Paper 88692, University Library of Munich, Germany.

    More about this item

    Keywords

    Global banking; emerging market economies; financial frictions; macroprudential policy.;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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