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The broad policy toolkit for financial stability: Foundations, fences, and fire doors

Etienne Lepers and Caroline Mehigan

No 2019/02, OECD Working Papers on International Investment from OECD Publishing

Abstract: The post financial crisis period has been associated with increased countercyclical use of various financial policies, including residency-based measures. This paper analyses in a single analytical framework the relative effectiveness of three types of financial policies – macroprudential (foundations), currency-based (fences), and residency-based measures (fire doors). The findings in this paper are based on a granular quarterly database of adjustments in these policies that covers both advanced and emerging economies from 2000 to 2015. The results show that residency-based measures on bonds and credit reduce capital inflows but provide limited support for a credit-mitigation role. While no evidence emerges that macroprudential measures alter capital inflows, most appear effective in reducing credit growth. Currency-based measures may reduce both inflows and credit growth (particularly FX reserve requirements and FX lending regulations). These results indicate that the impact of policies needs to be analysed at a granular level and that policy makers should adopt an integrated view of the financial policy toolkit.

JEL-codes: E58 F32 F34 F38 G15 G21 G28 (search for similar items in EconPapers)
Date: 2019-07-04
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:oec:dafaaa:2019/02-en

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