1887

OECD Working Papers on International Investment

Selected studies on international investment and investment policy prepared for use within the OECD. They address such issues as investment agreements, dispute settlement, fair and equitable treatment, most favored nation treatment, and corruption.

English

The broad policy toolkit for financial stability

Foundations, fences, and fire doors

The post financial crisis period has been associated with increased countercyclical use of various financial policies, including residency-based measures. This paper analyses in a single analytical framework the relative effectiveness of three types of financial policies – macroprudential (foundations), currency-based (fences), and residency-based measures (fire doors). The findings in this paper are based on a granular quarterly database of adjustments in these policies that covers both advanced and emerging economies from 2000 to 2015. The results show that residency-based measures on bonds and credit reduce capital inflows but provide limited support for a credit-mitigation role. While no evidence emerges that macroprudential measures alter capital inflows, most appear effective in reducing credit growth. Currency-based measures may reduce both inflows and credit growth (particularly FX reserve requirements and FX lending regulations). These results indicate that the impact of policies needs to be analysed at a granular level and that policy makers should adopt an integrated view of the financial policy toolkit.

English

JEL: F38: International Economics / International Finance / International Financial Policy: Financial Transactions Tax; Capital Controls; G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages; F34: International Economics / International Finance / International Lending and Debt Problems; E58: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Central Banks and Their Policies; G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation; G15: Financial Economics / General Financial Markets / International Financial Markets; F32: International Economics / International Finance / Current Account Adjustment; Short-Term Capital Movements
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