Externalities And Macroprudential Policy

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Externalities and Macroprudential Policy

Mr.Gianni De Nicolo,Giovanni Favara,Mr.Lev Ratnovski
Externalities and Macroprudential Policy Book PDF

Author : Mr.Gianni De Nicolo,Giovanni Favara,Mr.Lev Ratnovski
Publisher : International Monetary Fund
Page : 24 pages
File Size : 49,7 Mb
Release : 2012-06-07
Category : Business & Economics
ISBN : 9781475504095

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Externalities and Macroprudential Policy by Mr.Gianni De Nicolo,Giovanni Favara,Mr.Lev Ratnovski Pdf

This note overviews macroprudential policy options that have been proposed to address the systemic risks experienced during the recent financial crisis. It contributes to the policy debate by providing a taxonomy of macroprudential policies in terms of the specific negative externalities in the financial system that these policies are meant to address, and discusses their interrelations and some key implementation issues.

Externalities and Macroprudential Policy

Gianni De Nicolo
Externalities and Macroprudential Policy Book PDF

Author : Gianni De Nicolo
Publisher : Unknown
Page : 16 pages
File Size : 49,7 Mb
Release : 2017
Category : Electronic
ISBN : OCLC:1305015702

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Externalities and Macroprudential Policy by Gianni De Nicolo Pdf

As for any form of government intervention, macroprudential policy should be justified by market failures. This paper discusses three key externalities across financial institutions and from financial institutions to the real economy that rationalize the need for macroprudential policy: externalities related to strategic complementarities, fire sales and interconnectedness. We link each externality to recently proposed macroprudential policy tools, and argue that although various tools can correct the same externality, these tools are best seen as complements rather than substitutes.

An Overview of Macroprudential Policy Tools

Mr.Stijn Claessens
An Overview of Macroprudential Policy Tools Book PDF

Author : Mr.Stijn Claessens
Publisher : International Monetary Fund
Page : 38 pages
File Size : 40,9 Mb
Release : 2014-12-11
Category : Business & Economics
ISBN : 9781484358115

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An Overview of Macroprudential Policy Tools by Mr.Stijn Claessens Pdf

Macroprudential policies – caps on loan to value ratios, limits on credit growth and other balance sheets restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies – have become part of the policy paradigm in emerging markets and advanced countries alike. But knowledge is still limited on these tools. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They can also interact with various other policies, such as monetary and microprudential, raising coordination issues. Some countries, especially emerging markets, have used these tools and analyses suggest that some can reduce procyclicality and crisis risks. Yet, much remains to be studied, including tools’ costs ? by adversely affecting resource allocations; how to best adapt tools to country circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting tools.

Optimal Monetary and Macroprudential Policies Under Fire-Sale Externalities

Flora Lutz
Optimal Monetary and Macroprudential Policies Under Fire Sale Externalities Book PDF

Author : Flora Lutz
Publisher : International Monetary Fund
Page : 53 pages
File Size : 55,6 Mb
Release : 2023-03-10
Category : Business & Economics
ISBN : 9798400235191

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Optimal Monetary and Macroprudential Policies Under Fire-Sale Externalities by Flora Lutz Pdf

I provide an integrated analysis of monetary and macroprudential policies in a model economy featuring a financial friction and a nominal wage rigidity. In this set-up, the monetary authority faces a trade-off between macroeconomic and financial stability: While expansionary counter-cyclical monetary policy prevents involuntary unemployment, it also amplifies an inefficient reallocation of capital across sectors. The main contribution of the analysis is threefold: First it highlights a novel channel through which monetary policy can impact financial stability. Second, it shows that, by itself, monetary policy can significantly mitigate the wedge between the constrained efficient and the competitive allocation. Third, regardless of the availability of macroprudential tools, stabilizing demand is usually not optimal for monetary policy.

Monetary and Macroprudential Policy Coordination Among Multiple Equilibria

Mr.Itai Agur
Monetary and Macroprudential Policy Coordination Among Multiple Equilibria Book PDF

Author : Mr.Itai Agur
Publisher : International Monetary Fund
Page : 33 pages
File Size : 51,7 Mb
Release : 2018-11-02
Category : Business & Economics
ISBN : 9781484380642

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Monetary and Macroprudential Policy Coordination Among Multiple Equilibria by Mr.Itai Agur Pdf

The notion of a tradeoff between output and financial stabilization is based on monetary-macroprudential models with unique equilibria. Using a game theory setup, this paper shows that multiple equilibria lead to qualitatively different results. Monetary and macroprudential authorities have tools that impose externalities on each other's objectives. One of the tools (macroprudential) is coarse, while the other (monetary policy) is unconstrained. We find that this asymmetry always leads to multiple equilibria, and show that under economically relevant conditions the authorities prefer different equilibria. Giving the unconstrained authority a weight on "helping" the constrained authority ("leaning against the wind") now has unexpected effects. The relation between this weight and the difficulty of coordinating is hump-shaped, and therefore a small degree of leaning worsens outcomes on both authorities' objectives.

Evaluating the Net Benefits of Macroprudential Policy

Mr.Nicolas Arregui,Mr.Jaromir Benes,Mr.Ivo Krznar,Ms.Srobona Mitra,Mr.Andre Santos
Evaluating the Net Benefits of Macroprudential Policy Book PDF

Author : Mr.Nicolas Arregui,Mr.Jaromir Benes,Mr.Ivo Krznar,Ms.Srobona Mitra,Mr.Andre Santos
Publisher : International Monetary Fund
Page : 73 pages
File Size : 46,6 Mb
Release : 2013-07-17
Category : Business & Economics
ISBN : 9781484335727

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Evaluating the Net Benefits of Macroprudential Policy by Mr.Nicolas Arregui,Mr.Jaromir Benes,Mr.Ivo Krznar,Ms.Srobona Mitra,Mr.Andre Santos Pdf

The paper proposes a simple, new, analytical framework for assessing the cost and benefits of macroprudential policies. It proposes a measure of net benefits in terms of parameters that can be estimated: the probability of crisis, the loss in output given crisis, policy effectiveness in bringing down both the probability and damage during crisis, and the output-cost of a policy decision. It discusses three types of policy leakages and identifies instruments that could best minimize the leakages. Some rules of thumb for policymakers are provided.

Key Aspects of Macroprudential Policy - Background Paper

International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Monetary and Capital Markets Department
Key Aspects of Macroprudential Policy Background Paper Book PDF

Author : International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 64 pages
File Size : 55,7 Mb
Release : 2013-10-06
Category : Business & Economics
ISBN : 9781498341714

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Key Aspects of Macroprudential Policy - Background Paper by International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Monetary and Capital Markets Department Pdf

The countercyclical capital buffer (CCB) was proposed by the Basel committee to increase the resilience of the banking sector to negative shocks. The interactions between banking sector losses and the real economy highlight the importance of building a capital buffer in periods when systemic risks are rising. Basel III introduces a framework for a time-varying capital buffer on top of the minimum capital requirement and another time-invariant buffer (the conservation buffer). The CCB aims to make banks more resilient against imbalances in credit markets and thereby enhance medium-term prospects of the economy—in good times when system-wide risks are growing, the regulators could impose the CCB which would help the banks to withstand losses in bad times.

Externalities and Macroprudential Policy

Mr.Gianni De Nicolo,Giovanni Favara,Mr.Lev Ratnovski
Externalities and Macroprudential Policy Book PDF

Author : Mr.Gianni De Nicolo,Giovanni Favara,Mr.Lev Ratnovski
Publisher : International Monetary Fund
Page : 24 pages
File Size : 42,6 Mb
Release : 2012-06-07
Category : Business & Economics
ISBN : 9781475570700

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Externalities and Macroprudential Policy by Mr.Gianni De Nicolo,Giovanni Favara,Mr.Lev Ratnovski Pdf

This note overviews macroprudential policy options that have been proposed to address the systemic risks experienced during the recent financial crisis. It contributes to the policy debate by providing a taxonomy of macroprudential policies in terms of the specific negative externalities in the financial system that these policies are meant to address, and discusses their interrelations and some key implementation issues.

Optimal Macroprudential Policy and Asset Price Bubbles

Nina Biljanovska,Lucyna Gornicka,Alexandros Vardoulakis
Optimal Macroprudential Policy and Asset Price Bubbles Book PDF

Author : Nina Biljanovska,Lucyna Gornicka,Alexandros Vardoulakis
Publisher : International Monetary Fund
Page : 51 pages
File Size : 52,8 Mb
Release : 2019-08-30
Category : Business & Economics
ISBN : 9781513512662

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Optimal Macroprudential Policy and Asset Price Bubbles by Nina Biljanovska,Lucyna Gornicka,Alexandros Vardoulakis Pdf

An asset bubble relaxes collateral constraints and increases borrowing by credit-constrained agents. At the same time, as the bubble deflates when constraints start binding, it amplifies downturns. We show analytically and quantitatively that the macroprudential policy should optimally respond to building asset price bubbles non-monotonically depending on the underlying level of indebtedness. If the level of debt is moderate, policy should accommodate the bubble to reduce the incidence of a binding collateral constraint. If debt is elevated, policy should lean against the bubble more aggressively to mitigate the pecuniary externalities from a deflating bubble when constraints bind.

Macro-Prudential Policies to Mitigate Financial System Vulnerabilities

Stijn Claessens,Swati R. Ghosh,Miss Roxana Mihet
Macro Prudential Policies to Mitigate Financial System Vulnerabilities Book PDF

Author : Stijn Claessens,Swati R. Ghosh,Miss Roxana Mihet
Publisher : International Monetary Fund
Page : 36 pages
File Size : 51,6 Mb
Release : 2014-08-19
Category : Business & Economics
ISBN : 9781498357609

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Macro-Prudential Policies to Mitigate Financial System Vulnerabilities by Stijn Claessens,Swati R. Ghosh,Miss Roxana Mihet Pdf

Macro-prudential policies aimed at mitigating systemic financial risks have become part of the policy toolkit in many emerging markets and some advanced countries. Their effectiveness and efficacy are not well-known, however. Using panel data regressions, we analyze how changes in balance sheets of some 2,800 banks in 48 countries over 2000–2010 respond to specific macro-prudential policies. Controlling for endogeneity, we find that measures aimed at borrowers––caps on debt-to-income and loan-to-value ratios––and at financial institutions––limits on credit growth and foreign currency lending––are effective in reducing asset growth. Countercyclical buffers are little effective through the cycle, and some measures are even counterproductive during downswings, serving to aggravate declines, consistent with the ex-ante nature of macro-prudential tools.

Staff Guidance Note on Macroprudential Policy

International Monetary Fund
Staff Guidance Note on Macroprudential Policy Book PDF

Author : International Monetary Fund
Publisher : International Monetary Fund
Page : 45 pages
File Size : 45,5 Mb
Release : 2014-06-11
Category : Business & Economics
ISBN : 9781498342629

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Staff Guidance Note on Macroprudential Policy by International Monetary Fund Pdf

This note provides guidance to facilitate the staff’s advice on macroprudential policy in Fund surveillance. It elaborates on the principles set out in the “Key Aspects of Macroprudential Policy,” taking into account the work of international standard setters as well as the evolving country experience with macroprudential policy. The main note is accompanied by supplements offering Detailed Guidance on Instruments and Considerations for Low Income Countries

Macroprudential Policy - An Organizing Framework - Background Paper

International Monetary Fund. Monetary and Capital Markets Department
Macroprudential Policy An Organizing Framework Background Paper Book PDF

Author : International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 33 pages
File Size : 55,6 Mb
Release : 2011-03-14
Category : Business & Economics
ISBN : 9781498339179

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Macroprudential Policy - An Organizing Framework - Background Paper by International Monetary Fund. Monetary and Capital Markets Department Pdf

MCM conducted a survey in December 2010 to take stock of international experiences with financial stability and the evolving macroprudential policy framework. The survey was designed to seek information in three broad areas: the institutional setup for macroprudential policy, the analytical approach to systemic risk monitoring, and the macroprudential policy toolkit. The survey was sent to 63 countries and the European Central Bank (ECB), including all countries in the G-20 and those subject to mandatory Financial Sector Assessment Programs (FSAPs). The target list is designed to cover a broad range of jurisdictions in all regions, but more weight is given to economies that are systemically important (see Annex for details). The response rate is 80 percent. This note provides a summary of the survey’s main findings.

Systemic Risk, Crises, and Macroprudential Regulation

Xavier Freixas,Luc Laeven,Jose-Luis Peydro
Systemic Risk Crises and Macroprudential Regulation Book PDF

Author : Xavier Freixas,Luc Laeven,Jose-Luis Peydro
Publisher : MIT Press
Page : 487 pages
File Size : 54,8 Mb
Release : 2023-08-22
Category : Business & Economics
ISBN : 9780262549011

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Systemic Risk, Crises, and Macroprudential Regulation by Xavier Freixas,Luc Laeven,Jose-Luis Peydro Pdf

A framework for macroprudential regulation that defines systemic risk and macroprudential policy, describes macroprudential tools, and surveys the effectiveness of existing macroprudential regulation. The recent financial crisis has shattered all standard approaches to banking regulation. Regulators now recognize that banking regulation cannot be simply based on individual financial institutions' risks. Instead, systemic risk and macroprudential regulation have come to the forefront of the new regulatory paradigm. Yet our knowledge of these two core aspects of regulation is still limited and fragmented. This book offers a framework for understanding the reasons for the regulatory shift from a microprudential to a macroprudential approach to financial regulation. It defines systemic risk and macroprudential policy, cutting through the generalized confusion as to their meaning; contrasts macroprudential to microprudential approaches; discusses the interaction of macroprudential policy with macroeconomic policy (monetary policy in particular); and describes macroprudential tools and experiences with macroprudential regulation around the world. The book also considers the remaining challenges for establishing effective macroprudential policy and broader issues in regulatory reform. These include the optimal size and structure of the financial system, the multiplicity of regulatory bodies in the United States, the supervision of cross-border financial institutions, and the need for international cooperation on macroprudential policies.

Macroprudential and Microprudential Policies

Jacek Osinski,Katharine Seal,Mr.Lex Hoogduin
Macroprudential and Microprudential Policies Book PDF

Author : Jacek Osinski,Katharine Seal,Mr.Lex Hoogduin
Publisher : International Monetary Fund
Page : 28 pages
File Size : 44,7 Mb
Release : 2013-06-21
Category : Business & Economics
ISBN : 9781484369999

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Macroprudential and Microprudential Policies by Jacek Osinski,Katharine Seal,Mr.Lex Hoogduin Pdf

Effective arrangements for micro and macroprudential policies to further overall financial stability are strongly desirable for all countries, emerging or advanced. Both policies complement each other, but there can also be potential areas of overlap and conflict, which can complicate this cooperation. Organizing their very close interactions can help contain these potential tensions. This note clarifies the essential features of macroprudential and microprudential policies and their interactions, and delineates their borderline. It proposes mechanisms for aligning both policies in the pursuit of financial stability by identifying those elements that are desirable for effective cooperation between them. The note provides general guidance. Actual arrangements will need take into account country-specific circumstances, reflecting the fact that that there is no “one size fits all.”

Liquidity Trap and Excessive Leverage

Mr.Anton Korinek,Alp Simsek
Liquidity Trap and Excessive Leverage Book PDF

Author : Mr.Anton Korinek,Alp Simsek
Publisher : International Monetary Fund
Page : 49 pages
File Size : 52,6 Mb
Release : 2014-07-21
Category : Business & Economics
ISBN : 9781498370943

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Liquidity Trap and Excessive Leverage by Mr.Anton Korinek,Alp Simsek Pdf

We investigate the role of macroprudential policies in mitigating liquidity traps driven by deleveraging, using a simple Keynesian model. When constrained agents engage in deleveraging, the interest rate needs to fall to induce unconstrained agents to pick up the decline in aggregate demand. However, if the fall in the interest rate is limited by the zero lower bound, aggregate demand is insufficient and the economy enters a liquidity trap. In such an environment, agents' exante leverage and insurance decisions are associated with aggregate demand externalities. The competitive equilibrium allocation is constrained inefficient. Welfare can be improved by ex-ante macroprudential policies such as debt limits and mandatory insurance requirements. The size of the required intervention depends on the differences in marginal propensity to consume between borrowers and lenders during the deleveraging episode. In our model, contractionary monetary policy is inferior to macroprudential policy in addressing excessive leverage, and it can even have the unintended consequence of increasing leverage.