Template-Type: ReDIF-Paper 1.0
Author-Name: Katharina Bergant
Author-X-Name-First: Katharina
Author-X-Name-Last:Bergant
Author-Name: Francesco Grigoli
Author-X-Name-First: Francesco
Author-X-Name-Last: Grigoli
Author-Name: Niels-Jakob Hansen
Author-X-Name-First: Niels-Jakob
Author-X-Name-Last: Hansen
Author-Name: Katharina Damiano Sandri
Author-X-Name-First: Damiano
Author-X-Name-Last: Sandri
Title: Dampening global financial shocks: can macroprudential regulation help (more than capital controls)?
Abstract: We show that macroprudential regulation significantly dampens the impact of global financial shocks on emerging markets. Specifically, a tighter level of regulation reduces the sensitivity of GDP growth to capital flow shocks and movements in the VIX. A broad set of macroprudential tools contributes to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. We do not find evidence that capital controls provide similar benefits.
Creation-Date: 2023-05
File-URL: https://www.bis.org/publ/work1097.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1097.htm
File-Format: text/html
Number: 1097
Keywords: macroprudential regulation, monetary policy, capital controls
Classification-JEL: F3, F4, E5
Handle: RePEc:bis:biswps:1097