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International Coordination of Macroprudential Policies with Capital Flows and Financial Asymmetries

William Chen and Gregory Phelan ()
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William Chen: Williams College

No 2017-05, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: We consider a two-country macro model in which countries have limited ability to issue state-contingent contracts in international markets. Both countries have incentives to stabilize their economy by using macroprudential policy (limiting leverage or capital inflows), but the emerging economy depends on the advanced economy to bear global risk. Lack of coordination hurts developing economies but benefits advanced economies. Financially developed economies are unwilling to intermediate global risk, which means bearing systemic risk, preferring financial stability over credit flows. Advanced economies prefer tighter macroprudential policies than would occur with coordination, giving them greater bargaining power when negotiating international agreements.

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)
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-opm
Date: 2017-05, Revised 2018-11
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