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The International Dimensions of Macroprudential Policies

Listed author(s):
  • Agénor, Pierre-Richard
  • Gambacorta, Leonardo
  • Kharroubi, Enisse
  • Lombardo, Giovanni
  • Pereira da Silva, Luiz A.

The large economic costs associated with the Global Financial Crisis have generated renewed interest in macroprudential policies and their international coordination. Based on a core-periphery model that emphasizes the role of international financial centers, we study the effects of coordinated and non-coordinated macroprudential policies when financial intermediation is subject to frictions. We find that even when the only frictions in the economy consist of financial frictions and financial dependency of periphery banks, the policy prescriptions under international policy coordination can differ quite markedly from those emerging from self-oriented policy decisions. Optimal macroprudential policies must address both short run and long run inefficiencies. In the short run, the policy instruments need to be adjusted to mitigate the adverse consequences of the financial accelerator, and its cross-country spillovers. In the long run, policymakers need to take into account the effects of the higher cost of capital, due to the presence of financial frictions. The gains from cooperation appear to be sizable. Nevertheless, their magnitude could be asymmetric, pointing to potential political-economy obstacles to the implementation of cooperative measures.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 12108.

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Date of creation: Jun 2017
Handle: RePEc:cpr:ceprdp:12108
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