Research Insights: How Can Macro-Prudential Policy Control the Impact of Cross-Border Bank Flows on Emerging Market Economies?

Advanced economies (AEs) transmit economic crisis to Emerging Market Economies (EMEs) through cross-border bank flows, impacting their output, credit, and assets prices. Empirical evidence suggests that the transmission of the crisis from AEs to EMEs is higher in the absence of macro-prudential policy. A macro-prudential policy in the form of a levy on EMEs banks, when credit grows faster than deposits, reduces the propagation of AEs crisis to EMEs: the consumption drop is 12 percent lower, and the reaction of the labor market smoother, so consumers are better off with the policy than without it.

Bibliographic Details

Main Author:	Inter-American Development Bank
Other Authors:	Gabriel Cuadra
Language:	English
Published:	Inter-American Development Bank
Subjects:	Credit Growth, Financial Policy, Capital Flow, Financial System, Financial Friction, Macroeconomic Policy, Financial Stability, Emerging Market, G28 - Government Policy and Regulation, G21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages, E44 - Financial Markets and the Macroeconomy, F42 - International Policy Coordination and Transmission,
Online Access:	http://dx.doi.org/10.18235/0003327 https://publications.iadb.org/en/research-insights-how-can-macro-prudential-policy-control-impact-cross-border-bank-flows-emerging
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