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Macroprudential policies, the long-term interest rate and the exchange rate

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  • Philip Turner

Abstract

The Bernanke-Blinder closed economy model suggests that macroprudential policies aimed at bank lending will affect the domestic long-term interest rate. In an open economy, domestic shocks to long-term rates are likely to influence capital flows and the exchange rate. Currency movements feed back into domestic credit through several channels, which will be influenced by balance sheet positions and not only by income flows. Macroprudential policies aimed at domestic credit and at foreign currency borrowing may be the best option open to small countries facing very low global interest rates and risky domestic credit expansion.

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  • Philip Turner, 2016. "Macroprudential policies, the long-term interest rate and the exchange rate," BIS Working Papers 588, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:588
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    References listed on IDEAS

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    Cited by:

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    2. Sekar Utami Setiastuti & Nur Muhammad Adhi Purwanto & Aryo Sasongko, 2020. "Exchange Rate Insulation Properties And The Role Of Macroprudential Policy In A Small Open Economy," Working Papers WP/11/2020, Bank Indonesia.
    3. Setiastuti, Sekar Utami & Purwanto, Nur M. Adhi & Sasongko, Aryo, 2021. "External debt management as macroprudential policy in a small open economy," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 446-462.
    4. Soyoung Kim & Aaron Mehrotra, 2018. "Effects of Monetary and Macroprudential Policies—Evidence from Four Inflation Targeting Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(5), pages 967-992, August.
    5. Financial Stability Committee, Task Force on cross-border Spillover Effects of macroprudential measures & Kok, Christoffer & Reinhardt, Dennis, 2020. "Cross-border spillover effects of macroprudential policies: a conceptual framework," Occasional Paper Series 242, European Central Bank.

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    Keywords

    Bernanke-Blinder model; capital flows; interest rate policy; macroprudential policy;
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