DP9875 Macroprudential Policies in a Global Perspective

Author(s): Olivier Jeanne
Publication Date: March 2014
Keyword(s): Capital Controls, Capital Flows, International Policy Coordination, International Reserves, Liquidity Trap, Macroprudential Policy
JEL(s): F36, F41, F42
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9875

This paper analyzes the case for the international coordination of macroprudential policies in the context of a simple theoretical framework. Both domestic macroprudential policies and prudential capital controls have international spillovers through their impact on capital flows. The uncoordinated use of macroprudential policies may lead to a "capital war" that depresses global interest rates. International coordination of macroprudential policies is not warranted, however, unless there is unemployment in some countries. There is scope for Pareto-improving international policy coordination when one part of the world is in a liquidity trap while the rest of the world accumulates reserves for prudential reasons.