International Coordination of Macroprudential Policies with Capital Flows and Financial Asymmetries

William Chen and Gregory Phelan

No 2020-05, Department of Economics Working Papers from Department of Economics, Williams College

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. 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)
Pages: 85 pages
Date: 2020-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-ifn, nep-mac and nep-opm
Note: This is a revised version of paper 2017-05
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https://web.williams.edu/Economics/wp/ChenPhelanIntCoordMacroPolicies062020.pdf Full text (application/pdf)

Related works:
Journal Article: International coordination of macroprudential policies with capital flows and financial asymmetries (2021)
Working Paper: International Coordination of Macroprudential Policies with Capital Flows and Financial Asymmetries (2018)
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