DP9875 Macroprudential Policies in a Global Perspective
|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.