On The Use Of Monetary And Macroprudential Policies For Small Open Economies

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On the use of Monetary and Macroprudential Policies for Small Open Economies

Mr.F. Gulcin Ozkan,Ms.Filiz Unsal
On the use of Monetary and Macroprudential Policies for Small Open Economies Book PDF

Author : Mr.F. Gulcin Ozkan,Ms.Filiz Unsal
Publisher : International Monetary Fund
Page : 34 pages
File Size : 46,9 Mb
Release : 2014-06-24
Category : Business & Economics
ISBN : 9781498375429

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On the use of Monetary and Macroprudential Policies for Small Open Economies by Mr.F. Gulcin Ozkan,Ms.Filiz Unsal Pdf

We explore optimal monetary and macroprudential policy rules for a small open economy. Delegating 'lean against the wind' squarely to macroprudential policy provides a more robust policy mix to shock uncertainty—(i) if macroprudential measures exist, there are no significant welfare gains from monetary policy reacting to credit growth under a financial shock; and (ii) monetary responses to financial markets could generate bigger welfare losses than macroprudential responses under different shocks. The source of outstanding liabilities also plays a role in the choice of policy instrument— macroprudential policies are particularly effective for emerging markets where foreign borrowing is sizeable.

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 : 52,5 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.

The Use and Effectiveness of Macroprudential Policies

Mr.Eugenio Cerutti,Mr.Stijn Claessens,Mr.Luc Laeven
The Use and Effectiveness of Macroprudential Policies Book PDF

Author : Mr.Eugenio Cerutti,Mr.Stijn Claessens,Mr.Luc Laeven
Publisher : International Monetary Fund
Page : 43 pages
File Size : 52,6 Mb
Release : 2015-03-17
Category : Business & Economics
ISBN : 9781498321051

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The Use and Effectiveness of Macroprudential Policies by Mr.Eugenio Cerutti,Mr.Stijn Claessens,Mr.Luc Laeven Pdf

Using a recent IMF survey and expanding on previous studies, we document the use of macroprudential policies for 119 countries over the 2000-13 period, covering many instruments. Emerging economies use macroprudential policies most frequently, especially foreign exchange related ones, while advanced countries use borrower-based policies more. Usage is generally associated with lower growth in credit, notably in household credit. Effects are less in financially more developed and open economies, however, and usage comes with greater cross-border borrowing, suggesting some avoidance. And while macroprudential policies can help manage financial cycles, they work less well in busts.

Informality, Frictions, and Macroprudential Policy

Moez Ben Hassine,Mr.Nooman Rebei
Informality Frictions and Macroprudential Policy Book PDF

Author : Moez Ben Hassine,Mr.Nooman Rebei
Publisher : International Monetary Fund
Page : 37 pages
File Size : 55,8 Mb
Release : 2019-11-27
Category : Business & Economics
ISBN : 9781498320856

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Informality, Frictions, and Macroprudential Policy by Moez Ben Hassine,Mr.Nooman Rebei Pdf

We analyze the effects of macroprudential policies through the lens of an estimated dynamic stochastic general equilibrium (DSGE) model tailored to developing markets. In particular, we explicitly introduce informality in the labor and goods markets within a small open economy embedding financial frictions, nominal and real rigidities, labor search and matching, and an explicit banking sector. We use the estimated version of the model to run welfare analysis under optimized monetary and macroprudential rules. Results show that although informality reduces the efficiency of macroprudential policies following a convex fashion, combining the latter with an inflation targeting objective could be beneficial.

The Effectiveness of Monetary Policy in Small Open Economies

Keyra Primus
The Effectiveness of Monetary Policy in Small Open Economies Book PDF

Author : Keyra Primus
Publisher : International Monetary Fund
Page : 39 pages
File Size : 54,6 Mb
Release : 2016-09-16
Category : Business & Economics
ISBN : 9781475536874

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The Effectiveness of Monetary Policy in Small Open Economies by Keyra Primus Pdf

This paper examines the relative effectiveness of the use of indirect and direct monetary policy instruments in Barbados, Jamaica and Trinidad and Tobago, by estimating a restricted Vector Autoregressive model with Exogenous Variables (VARX). The study assumes that the central bank conducts monetary policy using a Taylor-type rule and it evaluates the effects of a reserve requirement policy. The results show that although a positive shock to the policy interest rate has a direct effect on commercial banks' interest rates, there is a weak transmission to the real variables. Furthermore, an increase in the required reserve ratio is successful in reducing private sector credit and excess reserves, while at the same time alleviating pressures on the exchange rate. The findings therefore indicate that central banks in small open economies should consider using reserve requirements as a complement to interest rate policy, to achieve their macroeconomic objectives.

Monetary Policy and Macroprudential Regulation with Financial Frictions

Pierre-Richard Agenor
Monetary Policy and Macroprudential Regulation with Financial Frictions Book PDF

Author : Pierre-Richard Agenor
Publisher : MIT Press
Page : 601 pages
File Size : 54,9 Mb
Release : 2020-11-10
Category : Business & Economics
ISBN : 9780262359429

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Monetary Policy and Macroprudential Regulation with Financial Frictions by Pierre-Richard Agenor Pdf

An integrated analysis of how financial frictions can be accounted for in macroeconomic models built to study monetary policy and macroprudential regulation. Since the global financial crisis, there has been a renewed effort to emphasize financial frictions in designing closed- and open-economy macroeconomic models for monetary and macroprudential policy analysis. Drawing on the extensive literature of the past decade as well as his own contributions, in this book Pierre-Richard Age&́nor provides a unified set of theoretical and quantitative macroeconomic models with financial frictions to explore issues that have emerged in the wake of the crisis. These include the need to understand better how the financial system amplifies and propagates shocks originating elsewhere in the economy; how it can itself be a source of aggregate fluctuations; the extent to which central banks should account for financial stability considerations in the conduct of monetary policy; whether national central banks and regulators should coordinate their policies to promote macroeconomic and financial stability; and how much countercyclical macroprudential policies should be coordinated at the international level to mitigate financial spillovers across countries.

Key Aspects of Macroprudential Policy

International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Monetary and Capital Markets Department
Key Aspects of Macroprudential Policy Book PDF

Author : International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 62 pages
File Size : 49,8 Mb
Release : 2013-10-06
Category : Business & Economics
ISBN : 9781498341707

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Key Aspects of Macroprudential Policy by International Monetary Fund. Fiscal Affairs Dept.,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Monetary and Capital Markets Department Pdf

The crisis has underscored the costs of systemic instability at both the national and the global levels and highlighted the need for dedicated macroprudential policies to achieve financial stability. Building on recent advances, this paper provides a framework to inform the IMF’s country-specific advice on macroprudential policy. It recognizes that developing macroprudential policy is a work in progress, and addresses key issues to help ensure its effectiveness.

Integrated Monetary and Financial Policies for Small Open Economies

Mr. Suman S Basu,Ms. Emine Boz,Ms. Gita Gopinath,Mr. Francisco Roch,Ms. Filiz D Unsal
Integrated Monetary and Financial Policies for Small Open Economies Book PDF

Author : Mr. Suman S Basu,Ms. Emine Boz,Ms. Gita Gopinath,Mr. Francisco Roch,Ms. Filiz D Unsal
Publisher : International Monetary Fund
Page : 77 pages
File Size : 50,6 Mb
Release : 2023-08-04
Category : Business & Economics
ISBN : 9798400250361

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Integrated Monetary and Financial Policies for Small Open Economies by Mr. Suman S Basu,Ms. Emine Boz,Ms. Gita Gopinath,Mr. Francisco Roch,Ms. Filiz D Unsal Pdf

We develop a tractable small-open-economy framework to characterize the constrained efficient use of the policy rate, foreign exchange (FX) intervention, capital controls, and domestic macroprudential measures. The model features dominant currency pricing, shallow FX markets, and occasionally-binding external and domestic borrowing constraints. We characterize the conditions for the “traditional prescription”—relying on the policy rate and exchange rate flexibility—to be sufficient, even if externalities persist. The conditions are satisfied for world interest rate shocks if FX markets are deep. By contrast, we show that to manage non-fundamental inflow surges and taper tantrums related to local currency debt, capital inflow taxes and FX intervention should be used instead of the policy rate and exchange rate flexibility. In the realistic case where countries face both shallow FX markets and external borrowing constraints, we establish that some kinds of FX mismatch regulations may reduce the external debt limit friction but worsen FX market depth. Finally, we show that capital controls and domestic macroprudential measures cease to be perfect substitutes if there is a risk that the domestic borrowing constraint binds as a result of the transmission of the global financial cycle.

Macroprudential Policy Effects

Nina Biljanovska,Sophia Chen,R. Gelos,Deniz Igan,Maria Martinez Peria,Erlend Nier,Fabian Valencia
Macroprudential Policy Effects Book PDF

Author : Nina Biljanovska,Sophia Chen,R. Gelos,Deniz Igan,Maria Martinez Peria,Erlend Nier,Fabian Valencia
Publisher : International Monetary Fund
Page : 52 pages
File Size : 47,5 Mb
Release : 2023-03-31
Category : Electronic
ISBN : 9798400226304

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Macroprudential Policy Effects by Nina Biljanovska,Sophia Chen,R. Gelos,Deniz Igan,Maria Martinez Peria,Erlend Nier,Fabian Valencia Pdf

The global financial crisis (GFC) underscored the need for additional policy tools to safeguard financial stability and ultimately macroeconomic stability. Systemic financial vulnerabilities had developed under a seemingly tranquil macroeconomic surface of low inflation and small output gaps. This challenged the precrisis view that achieving these traditional policy targets was a sufficient condition for macroeconomic stability. Thus, new tools had to be deployed to target specific financial vulnerabilities and to build buffers to cushion adverse aggregate shocks, while allowing traditional policy levers, including monetary and microprudential policies to focus on their traditional roles. Macroprudential policy measures emerged as the solution to this gap. Some of these measures had been used before the GFC (mostly in emerging markets). But it was only after the crisis that they were more widely adopted, and the toolkit expanded. This spurred a growing body of empirical research on the effects and potential shortfalls of these measures, with a further deepening of this knowledge gaining importance as policymakers confront increased financial stability risks in the post-pandemic world. Recognizing that there still is much to learn, this paper takes stock of our expanding understanding about the effects (and side effects) of macroprudential measures by focusing on these questions: What have we learned about the effects of macroprudential policy in containing the buildup of vulnerabilities? What do we know about the effects on economic activity and resilience? How do policy effects vary with conditions and over time? How important are leakages and circumvention? How do the effects on credit depend on other policies?

Unconventional Monetary Policy in a Small Open Economy

Margaux MacDonald,Michal Ksawery Popiel
Unconventional Monetary Policy in a Small Open Economy Book PDF

Author : Margaux MacDonald,Michal Ksawery Popiel
Publisher : International Monetary Fund
Page : 70 pages
File Size : 49,8 Mb
Release : 2017-12-01
Category : Business & Economics
ISBN : 9781484330944

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Unconventional Monetary Policy in a Small Open Economy by Margaux MacDonald,Michal Ksawery Popiel Pdf

This paper investigates the effects of unconventional monetary policy in a small open economy. Using recently proposed shadow interest rates to capture unconventional monetary policy at the zero lower bound (ZLB) we estimate a Bayesian structural vector autoregressive model for Canada - a useful case where foreign shocks can be proxied by U.S. variables alone. We find that, during the ZLB period, Canadian unconventional monetary policy increased output (measured by industrial production) by 0.013 percent per month on average while US unconventional monetary policy raised Canadian output by 0.127 percent per month on average. Our results demonstrate the effectiveness of domestic unconventional monetary policy and the strong positive spillover effects that foreign unconventional monetary policies can have in a small open economy.

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 : 49,9 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.

Macroprudential Policies in Response to External Financial Shocks

Mr. Irineu E de Carvalho Filho,DingXuan Ng
Macroprudential Policies in Response to External Financial Shocks Book PDF

Author : Mr. Irineu E de Carvalho Filho,DingXuan Ng
Publisher : International Monetary Fund
Page : 46 pages
File Size : 50,7 Mb
Release : 2023-01-20
Category : Business & Economics
ISBN : 9798400230035

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Macroprudential Policies in Response to External Financial Shocks by Mr. Irineu E de Carvalho Filho,DingXuan Ng Pdf

This paper examines how countries use Macroprudential Policies (MaPs) to respond to external shocks such as US monetary policy surprises or fluctuations in capital flows. Constructing a model of a small open economy with financial frictions and a MaP authority that adjusts loan to value (LTV) ratio limits on borrowers and capital adequacy ratio (CAR) limits on banks, we show that using MaPs where stochastic external financial shocks are present entails a trade-off between macro-financial volatility and GDP growth. The terms of the trade-off are a function of a few country characteristics that amplify financial channels of external monetary shocks. Estimating MaP reaction functions for a panel of 41 countries in the period 2000–2017, we find that countercyclical macroprudential policy in response to surprise US monetary tightening is more likely for countries with net short currency mismatches (that is, foreign currency denominated liabilities larger than foreign currency denominated assets), consistent with the model’s predictions. The paper also finds that domestic credit and interest rates are more insulated from US monetary tightening for countries that employ MaPs countercyclically.

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 : 52,9 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.

The Interaction of Monetary and Macroprudential Policies

International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Research Dept.
The Interaction of Monetary and Macroprudential Policies Book PDF

Author : International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Research Dept.
Publisher : International Monetary Fund
Page : 36 pages
File Size : 47,8 Mb
Release : 2012-12-29
Category : Business & Economics
ISBN : 9781498339506

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The Interaction of Monetary and Macroprudential Policies by International Monetary Fund. Monetary and Capital Markets Department,International Monetary Fund. Research Dept. Pdf

The recent crisis showed that price stability does not guarantee macroeconomic stability. In several countries, dangerous financial imbalances developed under low inflation and small output gaps. To ensure macroeconomic stability, policy has to include financial stability as an additional objective. But a new objective demands new tools: macroprudential tools that can target specific sources of financial imbalances (something monetary policy is not well suited to do). Effective macroprudential policies (which include a range of constraints on leverage and the composition of balance sheets) could then contain risks ex ante and help build buffers to absorb shocks ex post.

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 : 53,7 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.