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Macroprudential Regulations in Central America

Author

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  • Izquierdo, Alejandro
  • Loo-Kung, Rudy
  • Rojas-Suárez, Liliana

Abstract

In recent years, and especially in the aftermath of the global financial crisis, a number of emerging market economies have been reforming their regulatory frameworks to adopt recommendations of the macroprudential approach. This paper discusses the potential usefulness of implementing this approach in Central America. Two major results support serious consideration of this type of policy in the region. First, credit booms in Central America are not only as pronounced as in other emerging economies, they are also associated with significantly lower economic growth during downturns. Regulations that minimize the eruption of credit booms and busts are therefore warranted. Second, simulation exercises involving two of the most popular instruments under the macroprudential approach - reserve requirements and dynamic provisioning -suggest significant potential benefits for the stability of financial systems in the region.

Suggested Citation

  • Izquierdo, Alejandro & Loo-Kung, Rudy & Rojas-Suárez, Liliana, 2013. "Macroprudential Regulations in Central America," IDB Publications (Working Papers) 4215, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:4215
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    Cited by:

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    2. Agénor, Pierre-Richard & Alper, Koray & Pereira da Silva, Luiz A., 2014. "Sudden floods, macroprudential regulation and stability in an open economy," Journal of International Money and Finance, Elsevier, vol. 48(PA), pages 68-100.
    3. Rojas, Diego & Vegh, Carlos & Vuletin, Guillermo, 2022. "The macroeconomic effects of macroprudential policy: Evidence from a narrative approach," Journal of International Economics, Elsevier, vol. 139(C).
    4. Brei, Michael & Moreno, Ramon, 2019. "Reserve requirements and capital flows in Latin America," Journal of International Money and Finance, Elsevier, vol. 99(C).
    5. Ballouk, Hossein & Ben Jabeur, Sami & Challita, Sandra & Chen, Chaomei, 2024. "Financial stability: A scientometric analysis and research agenda," Research in International Business and Finance, Elsevier, vol. 70(PA).
    6. Gabriele Galati & Richhild Moessner, 2018. "What Do We Know About the Effects of Macroprudential Policy?," Economica, London School of Economics and Political Science, vol. 85(340), pages 735-770, October.
    7. Carreras, Oriol & Davis, E. Philip & Piggott, Rebecca, 2018. "Assessing macroprudential tools in OECD countries within a cointegration framework," Journal of Financial Stability, Elsevier, vol. 37(C), pages 112-130.

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    More about this item

    Keywords

    macroprudential regulation; monetary policy; financial stability; Central America;
    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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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