Increasing Resilience To Large And Volatile Capital Flows The Role Of Macroprudential Policies

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Increasing Resilience to Large and Volatile Capital Flows—The Role of Macroprudential Policies

International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Legal Dept.,International Monetary Fund. Monetary and Capital Markets Department
Increasing Resilience to Large and Volatile Capital Flows The Role of Macroprudential Policies Book PDF

Author : International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Legal Dept.,International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 49 pages
File Size : 50,5 Mb
Release : 2017-05-07
Category : Business & Economics
ISBN : 9781498346696

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Increasing Resilience to Large and Volatile Capital Flows—The Role of Macroprudential Policies by International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Legal Dept.,International Monetary Fund. Monetary and Capital Markets Department Pdf

Capital flows can deliver substantial benefits for countries, but also have the potential to contribute to a buildup of systemic financial risk. Benefits, such as enhanced investment and consumption smoothing, tend to be greater for countries whose financial and institutional development enables them to intermediate capital flows safely. Post-crisis reforms, including the development of macroprudential policies (MPPs), are helping to strengthen the resilience of financial systems including to shocks from capital flows. The Basel III process has improved the quality and level of capital, reduced leverage, and increased liquid asset holdings in financial systems. Drawing on and complementing such international reforms at the national level, robust macroprudential policy frameworks focused on mitigating systemic risk can improve the capacity of a financial system to safely intermediate cross-border flows. Macroprudential frameworks can play an important role over the capital flow cycle, and help members harness the benefits of capital flows. Introducing macroprudential measures (MPMs) preemptively can increase the resilience of the financial system to aggregate shocks, including those arising from capital inflows, and can contain the build-up of systemic vulnerabilities over time, even when such measures are not designed to limit capital flows. While the risks from capital outflows should be handled primarily by macroeconomic policies, a relaxation of MPMs may assist, as long as buffers are in place, in countering financial stresses from outflows. Capital flow liberalization should be supported by broad efforts to strengthen prudential regulation and supervision, including macroprudential policy frameworks. The Fund has two frameworks to help ensure that its advice on MPPs and policies related to capital flows is consistent and tailored to country circumstances. The frameworks (the Macroprudential framework and the Institutional View on capital flows) are consistent in terms of key principles, including avoiding using MPMs and capital flow management measures (CFMs) as a substitute for necessary macroeconomic adjustment. The appropriate classification of measures is important to ensure targeted advice consistent with the two frameworks. The conceptual framework for the assessment of measures laid out in this paper will assist staff in properly identifying MPMs and measures that are designed to limit capital flows and to reduce systemic financial risk stemming from such flows (CFM/MPMs), and thereby ensure the appropriate application of the Fund’s frameworks, so that staff policy advice is consistent and well targeted. The Fund will continue to develop and share expertise in using MPMs, and integrate these findings into its surveillance and technical assistance, which should contribute to building international understanding and experience on these issues.

Increasing Resilience to Large and Volatile Capital Flows

International Monetary Fund. Asia and Pacific Dept,International Monetary Fund. Western Hemisphere Dept.,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Monetary and Capital Markets Department
Increasing Resilience to Large and Volatile Capital Flows Book PDF

Author : International Monetary Fund. Asia and Pacific Dept,International Monetary Fund. Western Hemisphere Dept.,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 74 pages
File Size : 40,7 Mb
Release : 2017-09-13
Category : Business & Economics
ISBN : 9781498346405

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Increasing Resilience to Large and Volatile Capital Flows by International Monetary Fund. Asia and Pacific Dept,International Monetary Fund. Western Hemisphere Dept.,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Monetary and Capital Markets Department Pdf

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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 : 40,8 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.

Reserve Requirements in the Brave New Macroprudential World

Tito Cordella,Pablo Federico,Carlos Vegh,Guillermo Vuletin
Reserve Requirements in the Brave New Macroprudential World Book PDF

Author : Tito Cordella,Pablo Federico,Carlos Vegh,Guillermo Vuletin
Publisher : World Bank Publications
Page : 75 pages
File Size : 45,7 Mb
Release : 2014-04-04
Category : Business & Economics
ISBN : 9781464802126

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Reserve Requirements in the Brave New Macroprudential World by Tito Cordella,Pablo Federico,Carlos Vegh,Guillermo Vuletin Pdf

In the aftermath of the global financial crisis, it is hard to find any macroeconomic policy report that does not include some reference to financial stability or systemic risk and the resulting need for “macroprudential policies.” While there is a large and growing literature on macroprudential policies and financial stability, less attention has been paid to how macroprudential policies may facilitate macroeconomic stabilization in the presence of large capital flows. To fill such a gap, this report looks at the use of reserve requirements (RR) as a macroprudential tool. Its findings should be of particular interest to emerging market economists and policymakers that are faced with difficult questions regarding how to cope effectively with volatile capital flows. The analysis builds upon a new dataset on quarterly RR covering a large number of industrial and developing countries for the period 1970-2011. It finds that while no industrial country has resorted to active RR policy since 2004, almost half of developing countries have. Indeed, together with interest rates adjustments and forex interventions, RR seem to be an important component of a trio of policy instruments that developing countries have relied upon to navigate through the boom-bust cycles driven by capital flows. The ultimate reason for resorting to RR lies essentially on the procyclical behavior of the exchange rate over the business cycle in developing countries (with the currency depreciating in bad times and appreciating in good times) that complicates enormously the use of interest rates as a countercyclical instrument. Under such circumstances, RR are an effective instrument that can be used countercyclically when concerns about the effects of interest rates on the exchange rate become paramount. Finally, the report suggests that while, from a macroprudential point of view, the most common macroprudential instruments are equivalent, from a microprudential one they are not. Conflicts may thus arise between the micro- and macro-prudential policy stances. In addition, the overall design of macroprudential policies should follow a careful analysis of the role that different financial frictions play in various environments since similar symptoms can reflect very different underlying forces.

Capital Flows, Financial Intermediation and Macroprudential Policies

Matteo Ghilardi,Mr.Shanaka J. Peiris
Capital Flows Financial Intermediation and Macroprudential Policies Book PDF

Author : Matteo Ghilardi,Mr.Shanaka J. Peiris
Publisher : International Monetary Fund
Page : 31 pages
File Size : 48,7 Mb
Release : 2014-08-21
Category : Business & Economics
ISBN : 9781498365659

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Capital Flows, Financial Intermediation and Macroprudential Policies by Matteo Ghilardi,Mr.Shanaka J. Peiris Pdf

This paper develops an open-economy DSGE model with an optimizing banking sector to assess the role of capital flows, macro-financial linkages, and macroprudential policies in emerging Asia. The key result is that macro-prudential measures can usefully complement monetary policy. Countercyclical macroprudential polices can help reduce macroeconomic volatility and enhance welfare. The results also demonstrate the importance of capital flows and financial stability for business cycle fluctuations as well as the role of supply side financial accelerator effects in the amplification and propagation of shocks.

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 : 49,9 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 : 48,7 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.

Reserve Requirements in the Brave New Macroprudential World

Tito Cordella,Pablo Federico,Carlos Vegh,Guillermo Vuletin
Reserve Requirements in the Brave New Macroprudential World Book PDF

Author : Tito Cordella,Pablo Federico,Carlos Vegh,Guillermo Vuletin
Publisher : Unknown
Page : 128 pages
File Size : 44,6 Mb
Release : 2014-04-19
Category : Electronic
ISBN : 130666229X

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Reserve Requirements in the Brave New Macroprudential World by Tito Cordella,Pablo Federico,Carlos Vegh,Guillermo Vuletin Pdf

In the aftermath of the global financial crisis, it is hard to find any macroeconomic policy report that does not include some reference to financial stability or systemic risk and the resulting need for macroprudential policies. While there is a large and growing literature on macroprudential policies and financial stability, less attention has been paid to how macroprudential policies may facilitate macroeconomic stabilization in the presence of large capital flows. To fill such a gap, this report looks at the use of reserve requirements (RR) as a macroprudential tool. Its findings should be of particular interest to emerging market economists and policymakers that are faced with difficult questions regarding how to cope effectively with volatile capital flows. The analysis builds upon a new dataset on quarterly RR covering a large number of industrial and developing countries for the period 1970-2011. It finds that while no industrial country has resorted to active RR policy since 2004, almost half of developing countries have. Indeed, together with interest rates adjustments and forex interventions, RR seem to be an important component of a trio of policy instruments that developing countries have relied upon to navigate through the boom-bust cycles driven by capital flows. The ultimate reason for resorting to RR lies essentially on the procyclical behavior of the exchange rate over the business cycle in developing countries (with the currency depreciating in bad times and appreciating in good times) that complicates enormously the use of interest rates as a countercyclical instrument. Under such circumstances, RR are an effective instrument that can be used countercyclically when concerns about the effects of interest rates on the exchange rate become paramount. Finally, the report suggests that while, from a macroprudential point of view, the most common macroprudential instruments are equivalent, from a microprudential one they are not. Conflicts may thus arise between the micro- and macro-prudential policy stances. In addition, the overall design of macroprudential policies should follow a careful analysis of the role that different financial frictions play in various environments since similar symptoms can reflect very different underlying forces.

Capital Flows at Risk: Taming the Ebbs and Flows

Mr.R. G Gelos,Lucyna Gornicka,Mr.Robin Koepke,Ms.Ratna Sahay,Ms.Silvia Sgherri
Capital Flows at Risk Taming the Ebbs and Flows Book PDF

Author : Mr.R. G Gelos,Lucyna Gornicka,Mr.Robin Koepke,Ms.Ratna Sahay,Ms.Silvia Sgherri
Publisher : International Monetary Fund
Page : 44 pages
File Size : 47,5 Mb
Release : 2019-12-20
Category : Business & Economics
ISBN : 9781513522906

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Capital Flows at Risk: Taming the Ebbs and Flows by Mr.R. G Gelos,Lucyna Gornicka,Mr.Robin Koepke,Ms.Ratna Sahay,Ms.Silvia Sgherri Pdf

The volatility of capital flows to emerging markets continues to pose challenges to policymakers. In this paper, we propose a new framework to answer critical policy questions: What policies and policy frameworks are most effective in dampening sharp capital flow movements in response to global shocks? What are the near- versus medium-term trade-offs of different policies? We tackle these questions using a quantile regression framework to predict the entire future probability distribution of capital flows to emerging markets, based on current domestic structural characteristics, policies, and global financial conditions. This new approach allows policymakers to quantify capital flows risks and evaluate policy tools to mitigate them, thus building the foundation of a risk management framework for capital flows.

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 : 40,6 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.

Recent Experiences in Managing Capital Inflows—Cross-Cutting Themes and Possible Policy Framework

International Monetary Fund. Strategy, Policy, & Review Department
Recent Experiences in Managing Capital Inflows Cross Cutting Themes and Possible Policy Framework Book PDF

Author : International Monetary Fund. Strategy, Policy, & Review Department
Publisher : International Monetary Fund
Page : 98 pages
File Size : 54,9 Mb
Release : 2011-02-14
Category : Business & Economics
ISBN : 9781498339353

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Recent Experiences in Managing Capital Inflows—Cross-Cutting Themes and Possible Policy Framework by International Monetary Fund. Strategy, Policy, & Review Department Pdf

Emerging markets (EMs) are experiencing a surge in capital inflows, lifting asset prices and growth prospects. While inflows are typically beneficial for receiving countries, inflow surges can carry macroeconomic and financial stability risks. This paper reviews the recent experience of EMs in dealing with capital inflows and suggests a possible framework for IMF policy advice on the spectrum of measures available to policymakers to manage inflows, including macroeconomic policies, prudential measures and capital controls. Illustrative applications of this framework suggest that it may be appropriate for several countries, based on their current circumstances, to consider prudential measures or capital controls in response to capital inflows. The suggested framework is intended to inform staff policy advice to all Fund members with open capital accounts. It forms part of a broader effort to sharpen Fund surveillance, preserve evenhandedness, and foster greater global policy coordination. As indicated in the Supplement to this paper, this broader effort includes the development of “global rules of the game” on macroprudential policies, capital account liberalization, and reserve adequacy, and the preparation of spillover reports assessing spillovers from the five systemic economies—all of which will inform the current and broader framework being developed.

Gross Private Capital Flows to Emerging Markets: Can the Global Financial Cycle Be Tamed?

Erlend Nier,Tahsin Saadi Sedik,Tomas Mondino
Gross Private Capital Flows to Emerging Markets Can the Global Financial Cycle Be Tamed Book PDF

Author : Erlend Nier,Tahsin Saadi Sedik,Tomas Mondino
Publisher : International Monetary Fund
Page : 35 pages
File Size : 40,7 Mb
Release : 2014-10-27
Category : Business & Economics
ISBN : 9781498352925

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Gross Private Capital Flows to Emerging Markets: Can the Global Financial Cycle Be Tamed? by Erlend Nier,Tahsin Saadi Sedik,Tomas Mondino Pdf

This paper assesses empirically the key drivers of private capital flows to a large sample of emerging market economies in the last decade. It analyzes the effect of the global financial cycle, measured by the VIX, on capital flows and investigates the role of fundamentals and country characteristics in mitigating or amplifying its effect. Using interaction models, we find the effect of the VIX to be non-linear. For low levels of the VIX, capital flows are driven by fundamental factors. During periods of stress, the VIX becomes the dominant driver of capital flows while other determinants, with the exception of interest rate differentials, lose statistical significance. Our results also suggest that the effect of global financial conditions on gross private capital flows increases with the host country’s level of financial sector development. Finally, our results imply that countries cannot fully insulate themselves from global financial shocks, unless creating a fragmented global financial system.

An Overview of Macroprudential Policy Tools

Stijn Claessens
An Overview of Macroprudential Policy Tools Book PDF

Author : Stijn Claessens
Publisher : International Monetary Fund
Page : 38 pages
File Size : 47,5 Mb
Release : 2014-12-11
Category : Business & Economics
ISBN : 9781498340939

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An Overview of Macroprudential Policy Tools by 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.

Managing Elevated Risk

Iwan J. Azis,Hyun Song Shin
Managing Elevated Risk Book PDF

Author : Iwan J. Azis,Hyun Song Shin
Publisher : Springer
Page : 124 pages
File Size : 55,7 Mb
Release : 2014-12-11
Category : Business & Economics
ISBN : 9789812872845

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Managing Elevated Risk by Iwan J. Azis,Hyun Song Shin Pdf

This book discusses the risks and opportunities that arise in Emerging Asia given the context of a new environment in global liquidity and capital flows. It elaborates on the need to ensure financial and overall economic stability in the region through improved financial regulation and other policy measures to minimize the emergent risks. "Managing Elevated Risk: Global Liquidity, Capital Flows, and Macroprudential Policy—An Asian Perspective" also explores the range of policy options that may be deployed to address the impact of global liquidity on domestic financial and socio-economic conditions including income inequality. The book is primarily aimed at policy makers, financial market regulators and supervisory agencies to help them improve national regulatory systems and to promote harmonization of national regulations and practices in line with global standards. Scholars and researchers will also gain important information and knowledge about the overall impacts of changing global liquidity from the book.

Preemptive Policies and Risk-Off Shocks in Emerging Markets

Ms. Mitali Das,Ms. Gita Gopinath,Şebnem Kalemli-Özcan
Preemptive Policies and Risk Off Shocks in Emerging Markets Book PDF

Author : Ms. Mitali Das,Ms. Gita Gopinath,Şebnem Kalemli-Özcan
Publisher : International Monetary Fund
Page : 54 pages
File Size : 52,6 Mb
Release : 2022-01-07
Category : Business & Economics
ISBN : 9781616358341

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Preemptive Policies and Risk-Off Shocks in Emerging Markets by Ms. Mitali Das,Ms. Gita Gopinath,Şebnem Kalemli-Özcan Pdf

We show that “preemptive” capital flow management measures (CFM) can reduce emerging markets and developing countries’ (EMDE) external finance premia during risk-off shocks, especially for vulnerable countries. Using a panel dataset of 56 EMDEs during 1996–2020 at monthly frequency, we document that countries with preemptive policies in place during the five year window before risk-off shocks experienced relatively lower external finance premia and exchange rate volatility during the shock compared to countries which did not have such preemptive policies in place. We use the episodes of Taper Tantrum and COVID-19 as risk-off shocks. Our identification relies on a difference-in-differences methodology with country fixed effects where preemptive policies are ex-ante by construction and cannot be put in place as a response to the shock ex-post. We control the effects of other policies, such as monetary policy, foreign exchange interventions (FXI), easing of inflow CFMs and tightening of outflow CFMs that are used in response to the risk-off shocks. By reducing the impact of risk-off shocks on countries’ funding costs and exchange rate volatility, preemptive policies enable countries’ continued access to international capital markets during troubled times.