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Reserve requirements in the brave new macroprudential world

Tito Cordella, Pablo Federico, Carlos Vegh and Guillermo Vuletin

No 6793, Policy Research Working Paper Series from The World Bank

Abstract: Using a new, large data set on quarterly reserve requirements for the period 1970-2011, this paper provides new evidence on the use of reserve requirements as a countercyclical macroprudential tool in developing countries. The appeal of reserve requirements lies in the pro-cyclical behavior of the exchange rate over the business cycle in developing countries. This enormously complicates the use of interest rates as a countercyclical instrument (because of its effect on the exchange rate) and calls for a second instrument. The paper suggests that conflicts may arise between the microprudential and macroprudential policy stances.

Keywords: Debt Markets; Emerging Markets; Currencies and Exchange Rates; Economic Theory&Research; Banks&Banking Reform (search for similar items in EconPapers)
Date: 2014-02-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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