International coordination of macroprudential policies with capital flows and financial asymmetries

William Chen and Gregory Phelan

Journal of Financial Stability, 2021, vol. 56, issue C

Abstract: Lack of coordination for prudential regulation hurts developing economies but benefits advanced economies. We consider a two-country macro model in which countries have limited ability to issue state-contingent contracts in international markets, and equilibrium is constrained inefficient. Both countries have incentives to stabilize their economy by using prudential limits, but the emerging economy depends on the advanced economy to bear global risk. Intermediating global risk requires bearing systemic risk, which financially developed economies are unwilling to bear, preferring financial stability over credit flows. Advanced economies prefer tighter prudential limits than would occur with coordination, to the harm of emerging economies.

Keywords: International capital flows; Capital controls; Macroeconomic instability; Macroprudential regulation; Policy coordination; Spillovers; Financial crises (search for similar items in EconPapers)
JEL-codes: E44 F36 F38 F42 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: International Coordination of Macroprudential Policies with Capital Flows and Financial Asymmetries (2020)
Working Paper: International Coordination of Macroprudential Policies with Capital Flows and Financial Asymmetries (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:56:y:2021:i:c:s1572308921000899

DOI: 10.1016/j.jfs.2021.100929

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