Working Paper: CEPR ID: DP9875
Authors: Olivier Jeanne
Abstract: 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.
Keywords: capital controls; capital flows; international policy coordination; international reserves; liquidity trap; macroprudential policy
JEL Codes: F36; F41; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| uncoordinated macroprudential policies (E61) | capital war (H56) |
| capital war (H56) | depresses global interest rates (E43) |
| macroprudential policies (E60) | global economic conditions (F69) |
| liquidity trap (E41) | coordinated policy adjustments (E61) |
| coordinated policy adjustments (E61) | Pareto improvements (D61) |
| strategic complementarity of policies (F68) | inefficient outcomes in global welfare (F61) |