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Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?

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  • KATHARINA BERGANT
  • FRANCESCO GRIGOLI
  • NIELS‐JAKOB HANSEN
  • DAMIANO SANDRI

Abstract

We show that macroprudential regulation significantly dampens the impact of global financial shocks on emerging markets. Specifically, a tighter level of regulation reduces the sensitivity of GDP growth to capital flow shocks and movements in the Chicago Board Options Exchange's VIX. A broad set of macroprudential tools contributes to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macro‐economic stability. We do not find evidence that capital controls provide similar benefits.

Suggested Citation

  • Katharina Bergant & Francesco Grigoli & Niels‐Jakob Hansen & Damiano Sandri, 2024. "Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(6), pages 1405-1438, September.
    • Handle: RePEc:wly:jmoncb:v:56:y:2024:i:6:p:1405-1438
    DOI: 10.1111/jmcb.13089
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