 Addressing Spillovers from Prolonged U.S. Monetary Policy EasingStephen G. Cecchetti, Machiko Narita, Umang Rawat and Ratna Sahay Journal of Financial Stability, 2023, vol. 64, issue C Abstract: There is growing recognition that prolonged U.S. monetary policy easing has extraterritorial spillovers, driving up financial system leverage elsewhere in the world. Faced with financial stability threats that are not of their own making, what can these countries do? Specifically, is there a role for macroprudential tools, capital controls or foreign exchange intervention in safeguarding financial stability from risks arising externally? We examine the efficacy of these policy interventions by exploring whether preventative or reactive policy interventions can mitigate such risks. Using a sample of 950 bank and nonbank financial firms across 28 non-U.S. economies over the past two decades, we show that if policymakers are able to implement policies prior to an additional consecutive decline in U.S. interest rates, financial institutions do not increase their leverage by as much as they otherwise would. By contrast, it is more difficult to counter the spillovers with reactive policy interventions. Keywords: Spillovers; Prolonged monetary policy easing; Financial stability; Macroprudential policies; Foreign-exchange intervention; Capital flow management measures (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:64:y:2023:i:c:s1572308922001085 DOI: 10.1016/j.jfs.2022.101087 Access Statistics for this article Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman More articles in Journal of Financial Stability from Elsevier |
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