Research Insights: How Can Macro-Prudential Policy Control the Impact of Cross-Border Bank Flows on Emerging Market Economies?

2021 ◽  
Author(s):  
Gabriel Cuadra ◽  
Victoria Nuguer
Keyword(s):  
Labor Market ◽  
Economic Crisis ◽  
Emerging Market ◽  
Emerging Market Economies ◽  
Market Economies ◽  
Cross Border ◽  
Advanced Economies ◽  
Policy Control ◽  
The Impact ◽  
Prudential Policy

Advanced economies (AEs) transmit economic crisis to Emerging Market Economies (EMEs) through cross-border bank flows, impacting their output, credit, and assets prices. Empirical evidence suggests that the transmission of the crisis from AEs to EMEs is higher in the absence of macro-prudential policy. A macro-prudential policy in the form of a levy on EMEs banks, when credit grows faster than deposits, reduces the propagation of AEs crisis to EMEs: the consumption drop is 12 percent lower, and the reaction of the labor market smoother, so consumers are better off with the policy than without it.

IMF POLICY ADVICE TO EMERGING MARKET ECONOMIES DURING THE 2008–2009 CRISIS: NEW FUND OR NEW FUNDAMENTALS?

2011 ◽  
Vol 02 (01) ◽  
pp. 1-17 ◽  
Author(s):  
ATISH R. GHOSH ◽  
CHRISTOPHER CROWE ◽  
JUN IL KIM ◽  
JONATHAN D. OSTRY ◽  
MARCOS CHAMON
Keyword(s):  
International Monetary Fund ◽  
Emerging Market ◽  
Policy Advice ◽  
Emerging Market Economies ◽  
Fiscal Policies ◽  
Fiscal Consolidation ◽  
Market Economies ◽  
Advanced Economies ◽  
The Impact ◽  
The International Monetary Fund

This paper reviews the International Monetary Fund (IMF) policy advice to emerging market economies (EMEs) during the 2008-09 crisis, contrasting it to previous crisis episodes. EMEs that had strong fundamentals, and were mainly affected through international trade and financial spillovers, were advised to loosen monetary and fiscal policies, much like the counter-cyclical policies pursued by advanced economies. But in EMEs with "home-grown" vulnerabilities, the advice was more traditional fiscal consolidation, monetary restraint and structural reform, albeit with more financing and greater emphasis on cushioning the impact of the shock. Thus, the "new" IMF advice was the result of "new fundamentals" in EMEs.

scholarly journals Liquidity regulations and bank behavior: An emerging markets perspective

2021 ◽  
Vol 10 (4, special issue) ◽  
pp. 194-211
Author(s):  
Tafirei Mashamba
Keyword(s):  
Emerging Markets ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Emerging Market Economies ◽  
Basel Iii ◽  
Market Economies ◽  
Coverage Ratio ◽  
The Impact

The 2007 to 2009 global financial crisis significantly affected the funding structures of banks, especially internationally active ones (Gambacorta, Schiaffi, & Van Rixtel, 2017). This paper examines the impact of liquidity regulations, in particular, the liquidity coverage ratio (LCR), on funding structures of commercial banks operating in emerging markets over the period 2011 to 2016. Similar to Behn, Daminato, and Salleo (2019) who developed a dynamic partial equilibrium model to examine capital and liquidity adjustments, this paper develops three dynamic error component adjustment models and estimates them using the two-step system generalized method of moments (GMM) estimator to analyze funding adjustments adopted by banks in emerging markets in response to the LCR requirement. The results revealed that banks in emerging markets responded to binding liquidity regulations by increasing deposit, equity as well as long-term funding. In terms of the magnitude of response, deposit funding was found to be more responsive to the LCR rule while the elasticity of equity and long-term funding to the LCR specification was found to be weak. The weak response of equity and long-term funding to liquidity standards was attributed to low levels of capital market development in emerging markets (Bonner, van Lelyveld, & Zymek, 2015). By and large, the results suggest that Basel III liquidity regulations have been effective in persuading banks in emerging market economies to fund their business activities with stable funding instruments. Based on this evidence, the study supports the adoption of Basel III liquidity regulations in emerging markets. Moreover, policymakers in emerging market economies should monitor competition for retail deposits to safeguard the benefits of the LCR rule and pay more attention to developing capital markets.

scholarly journals The Impact of Currency Misalignment on Trade Balance of Emerging Market Economies

2021 ◽  
Vol 12 (2) ◽  
pp. 285-304
Author(s):  
Abdullahil Mamun ◽  
Emrah Eray Akça ◽  
Harun Bal
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Emerging Market ◽  
Emerging Market Economies ◽  
Method Of Moment ◽  
Market Economies ◽  
Exchange Rate Misalignment ◽  
The Impact ◽  
Currency Misalignment

This study is an attempt to examine the impact of currency misalignment on the trade balance of emerging market economies from 1980 through 2016. It firstly measures the equilibrium RER and corresponding misalignment series of 21 EMEs separately adopting a single equation approach and then includes them in the trade regression together with undervaluation and overvaluation to estimate the dynamic relationship between the trade balance and real exchange rate misalignment employing the system generalized method of moment estimation approach. The study suggests that, being a composite series of undervaluation and overvaluation, higher real exchange rate misalignment helps recover trade imbalances. It also identifies that undervaluation improves trade balance, while overvaluation cuts it down. The study identifies that the misalignment series of RER for most of the EMEs are substantially dominated by overvaluation episodes, and hence the opposing impact of undervaluation and currency misalignment on the trade balance of EMEs is not surprising. From the policy perspective, competitiveness achieved through currency movements helps emerging market economies not only to improve trade balance but also to withstand vulnerability that arises from huge external borrowings creating a strong external payment position.

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