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Volatile Capital Flows and Economic Growth: The Role of Macro-prudential Regulation

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  • Kyriakos C. Neanidis

Abstract

In this paper, we examine the links among macro-prudential regulation, the volatility of financial flows, and economic growth. In particular, we explore whether macroprudential regulation mitigates the adverse effects of capital flows volatility on economic growth. Using cross-country data for the period 1973-2013, we find that macroprudential regulation promotes economic growth by reducing the negative impact of volatile capital flows. The findings hold for both aggregate capital flows and their various components, while they are also robust for various indicators of macro-prudential policies. The results support the argument that macro-prudential policy rules designed to ensure financial stability are beneficial to long-run economic growth.

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  • Kyriakos C. Neanidis, 2015. "Volatile Capital Flows and Economic Growth: The Role of Macro-prudential Regulation," Centre for Growth and Business Cycle Research Discussion Paper Series 215, Economics, The University of Manchester.
    • Handle: RePEc:man:cgbcrp:215
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