Macroprudential measures and capital controls: towards a framework for policy evaluation
Financial Stability Review, 2017, issue 21, 157-166
One decade after the onset of the global financial crisis, the stability of the global financial system remains a key concern to policymakers. The question as to what policies are actually effective and help to promote financial stability is at the heart of the current regulatory debate. This article has two main goals. First, it discusses the channels through which capital controls and macroprudential policies affect the stability of financial markets. Cross-border capital flows may destabilise economic activity in particular if the domestic financial system is underdeveloped and institutions are weak. Similar frictions and weaknesses cause domestic imbalances to build up. Second, this contribution outlines how capital controls and macroprudential policies can contribute to a stabilising role of capital flows and mitigate financial contagion. A structured framework for the assessment of policies is needed. Such a framework can provide valuable insights into the effectiveness of macroprudential instruments, their relationship with capital controls, and potential side effects. One precondition for effective policy evaluation is the availability of sufficiently granular data on the activities of financial institutions and on the regulatory framework across countries. On this basis, internationally coordinated policy analysis can significantly enhance our knowledge of the effects of financial stability policies.
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