IDEAS home Printed from https://ideas.repec.org/p/oec/dafaaa/2021-01-en.html
   My bibliography  Save this paper

Assessing the effectiveness of currency-differentiated tools: The case of reserve requirements

Author

Listed:
  • Annamaria de Crescenzio

    (OECD)

  • Etienne Lepers

    (OECD)

  • Zoe Fannon

    (University of Oxford)

Abstract

This paper provides the first comprehensive analysis of benefits and side-effects of foreign-currency differentiated reserve requirements for a sample of 58 countries from 1999 to 2015. Departing from the existing literature on effectiveness which used binary variables to measure policy changes, the intensity of reserve requirement adjustments is captured by using the gap between foreign and local currency rates to isolate the impact of differentiation net of volume effects.The findings show that increasing the gap between FX and local currency-denominated reserve requirements is generally effective in reducing currency mismatch and dollarisation in banks’ balance sheets, notably through a reduction in the share of banks’ FX liabilities to total liabilities and in banks’ net FX positions. The findings also show that a higher gap is associated with a broader reduction in capital inflows, in particular portfolio debt inflows and flows to non-banks. Little evidence of domestic or international circumvention, with risks shifting to other sectors or countries is visible.

Suggested Citation

  • Annamaria de Crescenzio & Etienne Lepers & Zoe Fannon, 2021. "Assessing the effectiveness of currency-differentiated tools: The case of reserve requirements," OECD Working Papers on International Investment 2021/01, OECD Publishing.
    • Handle: RePEc:oec:dafaaa:2021/01-en
    DOI: 10.1787/e979a657-en
    as

    Download full text from publisher

    File URL: https://doi.org/10.1787/e979a657-en
    Download Restriction: no
    File URL: https://libkey.io/10.1787/e979a657-en?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kuttner, Kenneth N. & Shim, Ilhyock, 2016. "Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies," Journal of Financial Stability, Elsevier, vol. 26(C), pages 31-44.
    2. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    3. Emre Ozsoz & Erick W. Rengifo & Ali M. Kutan, 2015. "Foreign Currency Lending and Banking System Stability : New Evidence from Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 15(2), pages 1-29.
    4. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LLC, vol. 9(1), pages 86-136, March.
    5. Ahnert, Toni & Forbes, Kristin & Friedrich, Christian & Reinhardt, Dennis, 2021. "Macroprudential FX regulations: Shifting the snowbanks of FX vulnerability?," Journal of Financial Economics, Elsevier, vol. 140(1), pages 145-174.
    6. Zohair Alam & Mr. Adrian Alter & Jesse Eiseman & Mr. Gaston Gelos & Mr. Heedon Kang & Mr. Machiko Narita & Erlend Nier & Naixi Wang, 2019. "Digging Deeper--Evidence on the Effects of Macroprudential Policies from a New Database," IMF Working Papers 2019/066, International Monetary Fund.
    7. Jérôme Vandenbussche & Ursula Vogel & Enrica Detragiache, 2015. "Macroprudential Policies and Housing Prices: A New Database and Empirical Evidence for Central, Eastern, and Southeastern Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S1), pages 343-377, March.
    8. Yasin Mimir & Enes Sunel, 2019. "External Shocks, Banks, and Optimal Monetary Policy: A Recipe for Emerging Market Central Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 15(2), pages 235-299, June.
    9. International Monetary Fund, 2011. "Macroprudential Policy: What Instruments and How to Use them? Lessons From Country Experiences," IMF Working Papers 2011/238, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daniel Carvalho & Etienne Lepers & Rogelio Jr Mercado, 2021. "Taming the "Capital Flows-Credit Nexus": A Sectoral Approach," Trinity Economics Papers tep0921, Trinity College Dublin, Department of Economics.
    2. Daniel Carvalho & Etienne Lepers & Rogelio Mercado, 2025. "Taming the “Capital Flows-Credit Nexus”: A Sectoral Approach," Open Economies Review, Springer, vol. 36(2), pages 373-429, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Das, Mitali & Ordal, Hailey, 2022. "Macroeconomic stability or financial stability: How are capital controls used? Insights from a new database," Journal of Financial Stability, Elsevier, vol. 63(C).
    2. Malovaná, Simona & Hodula, Martin & Gric, Zuzana & Bajzík, Josef, 2023. "Macroprudential policy in central banks: Integrated or separate? Survey among academics and central bankers," Journal of Financial Stability, Elsevier, vol. 65(C).
    3. Nitzan Tzur-Ilan, 2019. "Macroprudential Policy: Implementation, Effects, And Lessons," Israel Economic Review, Bank of Israel, vol. 17(1), pages 39-71.
    4. Garcia Revelo, José David & Lucotte, Yannick & Pradines-Jobet, Florian, 2020. "Macroprudential and monetary policies: The need to dance the Tango in harmony," Journal of International Money and Finance, Elsevier, vol. 108(C).
    5. Kim, Soyoung & Oh, Junbeom, 2020. "Macroeconomic effects of macroprudential policies: Evidence from LTV and DTI policies in Korea," Japan and the World Economy, Elsevier, vol. 53(C).
    6. Tiago F. A. Matos & João C. A. Teixeira & Tiago M. Dutra, 2023. "The contribution of macroprudential policies to banks' resilience: Lessons from the systemic crises and the COVID‐19 pandemic shock," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 794-830, December.
    7. Jose David GARCIA REVELO & Yannick LUCOTTE & Florian PRADINES-JOBET, 2019. "Macroprudential and Monetary Policies : The Need to Dance the Tango in Harmony," LEO Working Papers / DR LEO 2691, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    8. Apergis, Nicholas & Aysan, Ahmet F. & Bakkar, Yassine, 2022. "Borrower- and lender-based macroprudential policies: What works best against bank systemic risk?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    9. Kumar, Sanjiv & Prabheesh, K.P. & Bashar, Omar, 2022. "Examining the effectiveness of macroprudential policy in India," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 91-113.
    10. Kristin J. Forbes, 2021. "The International Aspects of Macroprudential Policy," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 203-228, August.
    11. Matos, Tiago F.A. & Teixeira, João C.A. & Dutra, Tiago M., 2024. "Macroprudential regulation and bank risk: The role of shareholders' and creditors' rights," Global Finance Journal, Elsevier, vol. 59(C).
    12. Zoë Venter, 2022. "Macroprudential policy under uncertainty," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(2), pages 161-209, May.
    13. Dimitris Mokas & Massimo Giuliodori, 2021. "Effects of LTV announcements in EU economies," Working Papers 704, DNB.
    14. Zhong, Changbiao & Xie, Lijuan & Shi, Yu & Xu, Xiangyun, 2023. "Macro-prudential policy, its alignment with monetary policy and house price growth: A cross-country study," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 51-62.
    15. Marcin Czaplicki, 2022. "Measuring the restrictiveness of (macro)prudential policy: the case of bank capital regulation in Poland," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(3), pages 322-338, September.
    16. Coulier, Lara & De Schryder, Selien, 2024. "Assessing the effects of borrower-based macroprudential policy on credit in the EU using intensity-based indices," Journal of International Money and Finance, Elsevier, vol. 142(C).
    17. Zoe Venter, 2020. "The Interaction Between Macroprudential Policy and Financial Stability," Working Papers REM 2020/0123, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    18. Araujo, Juliana & Patnam, Manasa & Popescu, Adina & Valencia, Fabian & Yao, Weijia, 2024. "Effects of macroprudential policy: Evidence from over 6000 estimates," Journal of Banking & Finance, Elsevier, vol. 169(C).
    19. Coman, Andra, 2023. "Monetary policy spillovers and the role of prudential policies in the European Union," Working Paper Series 2854, European Central Bank.
    20. Mokas, Dimitris & Giuliodori, Massimo, 2023. "Effects of LTV announcements in EU economies," Journal of International Money and Finance, Elsevier, vol. 133(C).

    More about this item

    Keywords

    banking regulation; differentiated reserve requirement; dollarisation; macro-prudential policies;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F3 - International Economics - - International Finance
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oec:dafaaa:2021/01-en. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/caoecfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.