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October 03, 2017

BIS published an article by Luiz Awazu Pereira da Silva and Michael Chui on avoiding "regulatory wars" using the international coordination of macro-prudential policies. The authors highlight that global financial stability needs international coordination on macro-prudential policies between major emerging market economies (those that represent a large combined share of the global economy) and the major advanced economies. This article is based on panel remarks at the Seminar on Financial Volatility and Foreign Exchange Intervention: Challenges for Central Banks, which was jointly organized by the Inter-American Development Bank and the Central Reserve Bank of Peru.

The authors discuss the post-global-financial-crisis financial spillovers and its collateral effects on the emerging market economies. They explore whether a combination of integrated inflation targeting, with its countercyclical macro-prudential policies, and foreign exchange interventions, plus capital flow management, is sufficient to reduce financial volatility in the emerging market economies. The authors then examine the international coordination of macro-prudential policies as an alternative to capital flow management and conclude that regulatory wars can be avoided using international coordination of macro-prudential policies. The authors argue that the current challenge is to try to avoid negative externalities resulting in regulatory wars by coordinating macro-prudential policies internationally. Not only could such an international coordination help the emerging market economies to cope with large spillovers, but advanced economies could also benefit from reduced spillbacks from the emerging market economies. This would constitute an undeniable win-win for the global economy.

 

Related Link: International Coordination of Macro-Prudential Policies (PDF)

Keywords: International, Banking, Financial Stability, Macro-prudential Policy, International Coordination, BIS

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