Dampening global financial shocks: can macroprudential regulation help (more than capital controls)?

Katharina Bergant, Francesco Grigoli (), Niels-Jakob Hansen and Damiano Sandri

No 1097, BIS Working Papers from Bank for International Settlements

Abstract: We show that macroprudential regulation significantly dampens the impact of global financial shocks on emerging markets. Specifically, a tighter level of regulation reduces the sensitivity of GDP growth to capital flow shocks and movements in the VIX. A broad set of macroprudential tools contributes to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. We do not find evidence that capital controls provide similar benefits.

Keywords: macroprudential regulation; monetary policy; capital controls (search for similar items in EconPapers)
JEL-codes: E5 F3 F4 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-des and nep-mon
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)? (2024)
Working Paper: Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)? (2020)
Working Paper: Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)? (2020)
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