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Macroprudential Policies for a Resource Rich Economy The Case of Mongolia

Rodolfo Maino, Patrick Imam and Yasuhisa Ojima

No 2013/018, IMF Working Papers from International Monetary Fund

Abstract: This paper explores the extent to which macroprudential tools can be used to manage banking sector risks in Mongolia, a commodity producing country exposed to both procyclical and cross-sectional financial sector risks. Loose fiscal policy, rising credit activity, and heightened risk appetite—attributable to the commodity boom—are fuelling price volatility in asset markets, posing significant risks to financial stability if left unchecked. Rising interconnectedness, potential increase in dollarization and concentrated exposures are compounding those risks. Macroprudential tools can complement fiscal and monetary policy adjustments to avoid the buildup of vulnerabilities in the banking sector.

Keywords: WP; financial system; Mongolia; monetary policy; foreign exchange; Macroprudential Policies; Macrofinancial Linkages; Systemic Risk; Mongolia context; heightened risk appetite; cost of capital; Mongolia's financial system; bank financial system regulator; resource allocation; banking system in Mongolia; monetary policy tool; natural resource curse; risk identification; inflation rate; Financial sector stability; Macroprudential policy; Credit; Commercial banks; Global (search for similar items in EconPapers)
Pages: 47
Date: 2013-01-22
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Handle: RePEc:imf:imfwpa:2013/018