Friend or Foe? Cross-Border Linkages, Contagious Banking Crises, and “Coordinated” Macroprudential Policies

Seung Mo Choi, Laura Kodres and Jing Lu

No 2018/009, IMF Working Papers from International Monetary Fund

Abstract: This paper examines whether the coordinated use of macroprudential policies can help lessen the incidence of banking crises. It is well-known that rapid domestic credit growth and house price growth positively influence the chances of a banking crisis. As well, a crisis in other countries with high trade and financial linkages raises the crisis probability. However, whether such “contagion effects” can operate to reduce crisis probabilities when highly linked countries execute macroprudential policies together has not been fully explored. A dataset documenting countries’ use of macroprudential tools suggests that a “coordinated” implementation of macroprudential policies across highly-linked countries can help to stem the risks of widespread banking crises, although this positive effect may take some time to materialize.

Keywords: WP; break; banking crisis; center; house price growth; Trade Linkages; Financial Linkages; Financial Crisis; Macroprudential Policies; trade partner; credit growth; loan recipient; crisis probability; Housing prices; Banking crises; Credit; Macroprudential policy; Macroprudential policy instruments; Global (search for similar items in EconPapers)
Pages: 44
Date: 2018-01-23
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Citations: View citations in EconPapers (13)

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