Global Banking, Financial Spillovers, and Macroprudential Policy Coordination

Jan 17, 2019 | P-R. Agénor, L. A. Pereira da Silva | Bank for International Settlements (BIS)
There is growing evidence that international financial spillovers have become a two-way street. They occur not only from the major advanced economies to the rest of the world, but also, and increasingly, from a group of large middle-income countries to advanced economies. Because financial markets are prone to amplification effects, and because business and financial cycles remain imperfectly synchronised across countries, this new environment creates the potential for shocks in one jurisdiction to be magnified and transmitted to others through short-term capital flows. In turn, these flows may exacerbate financial instability in both originating and recipient countries, thereby creating a case for international macroprudential policy coordination. The paper focuses on measuring how large the gains from such coordination are likely to be.