Policymaking from a "macroprudential" perspective in emerging market economies
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.
|Date of creation:||Jan 2011|
|Date of revision:|
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- Celine Gauthier & Alfred Lehar & Moez Souissi, 2010. "Macroprudential Regulation and Systemic Capital Requirements," Staff Working Papers 10-4, Bank of Canada.
- 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.
- Hernando Vargas Herrera & Carlos Varela & Yanneth R. Betancourt & Norberto Rodríguez, 2010. "Effects of Reserve Requirements in an Inflation Targeting Regime: The Case of Colombia," BORRADORES DE ECONOMIA 006710, BANCO DE LA REPÚBLICA.
- Hernando Vargas & Carlos Varela & Yanneth R. Betancourt & Norberto Rodríguez, . "Effects of Reserve Requirements in an Inflation Targeting Regime: The Case of Colombia," Borradores de Economia 587, Banco de la Republica de Colombia.
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