Working Paper: NBER ID: w19967
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: macroprudential policies; international coordination; capital flows; global interest rates
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 |
|---|---|
| Domestic macroprudential policies (E61) | International spillovers (F69) |
| Restriction in one country (F55) | Deflection of capital flows to others (F32) |
| Uncoordinated macroprudential policies (E61) | Capital war (H56) |
| Capital war (H56) | Depressed global interest rates (E43) |
| Coordination of macroprudential policies (E61) | Enhanced global demand (F69) |
| Coordination of macroprudential policies (E61) | Alleviation of unemployment (J68) |
| Uncoordinated policies in a global liquidity trap (E61) | Exacerbation of unemployment (F66) |
| International cooperation (F53) | Avoidance of adverse global economic outcomes (F69) |