Risky Banks and Macroprudential Policy for Emerging Economies

Victoria Nuguer and Gabriel Cuadra

No 2016-06, Working Papers from Banco de México

Abstract: We develop a two-country DSGE model with global banks to analyze the role of cross-border banking flows on the transmission of a quality of capital shock in the United States to emerging market economies (EMEs). Banks face a moral hazard problem for borrowing from households. EME's banks might be risky: they can also be constrained to borrow from U.S. banks. A negative quality of capital shock in the United States generates a global financial crisis. EME's macroprudential policy that targets non-core liabilities makes the domestic economy resilient to the volatility of cross-border banking flows and makes EME's households better-off.

Keywords: Global banking; emerging market economies; financial frictions; macroprudential policy (search for similar items in EconPapers)
JEL-codes: E44 F42 G21 G28 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon, nep-net and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Risky Banks and Macro-Prudential Policy for Emerging Economies (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bdm:wpaper:2016-06

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