BIS Article on International Coordination of Macro-Prudential Policies

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