Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?

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

No 14948, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that macroprudential regulation can considerably dampen the impact of global financial shocks on emerging markets. More specifically, a tighter level of regulation reduces the sensitivity of GDP growth to VIX movements and capital flow shocks. A broad set of macroprudential tools contribute to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky forms of 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. These findings on the benefits of macroprudential regulation are particularly notable since we do not find evidence that stricter capital controls provide similar gains.

Keywords: Macroprudential policies; Monetary policy; Capital controls (search for similar items in EconPapers)
JEL-codes: E5 F3 F4 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-fdg, nep-mac and nep-mon
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Citations: View citations in EconPapers (39)

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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)? (2023)
Working Paper: Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)? (2020)
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