Macro-Financial Stability Policy in a Globalised World: Lessons from International Experience - Selected Papers from the Asian Monetary Policy Forum 2021 Special Edition and Mas-Bis Conference

Contents
About the Editors
About the Contributors
Welcome Remarks: The Quest for an Integrated Macro-Policy Framework
	Macro-financial stability: Theory trying to catch up with practice
	What is the big deal with capital flows?
	Whose problem is it?
	Some questions for an integrated policy framework
	Conclusion
	References
Welcome Remarks: Historical Evolution of Macro-Financial Stability Frameworks and a Search of a New Conceptual Framework
	Introduction
	Brief historical overview
	In search of a new conceptual framework
Chapter 1 Macro-Financial Stability Frameworks: Experience and Challenges
	1. Introduction
	2. A MFSF: Why its increasing relevance?
	3. MFSFs: Deployment of macroprudential and capital flow management measures
		3.1. Experience of using macroprudential measures between 1995 and 2020
		3.2. Experience of selected EMEs using CFMs between 2000 and 2019
	4. MFSFs in practice
		4.1. Combining monetary policy and macroprudential measures in AEs
		4.2. Special relevance of external financial conditions in EMEs
	5. Original sin, original sin redux and policy implications for EMEs
		5.1. Original sin redux in EME local currency bond markets
		5.2. Original sin in EME foreign currency bond markets
		5.3. Policy options to deal with original sin and original sin redux
	6. MFSFs: The effectiveness of macro-financial measures
	7. Outstanding challenges
	References
Macro-Financial Stability Frameworks: Experience and Challenges: A Discussion
	Joint use of policies to mitigate risks from external influences
	Holistic macro-financial stability still a work in progress
	More studies needed on understanding international spillovers and spillbacks
	Final remarks
	References
Chapter 2 What Happens in Vegas Does Not Stay in Vegas
	1. Introduction
	2. Example 1: Treasury market dysfunction in the US
	3. Example 2: The challenges in tracking cross-border activity of non-banks
	4. Example 3: The inability to monitor shadow banking activity
	5. Example 4: Ambiguities in existing bank regulation
	6. Potential solutions
	References
Chapter 3 Macroprudential Policies and the COVID-19 Pandemic: Risks and Challenges for Emerging Markets
	1. Introduction
	2. The macroprudential landscape before the pandemic
		2.1. A map to MaPs
		2.2. Assessing MaPs’ effectiveness: Selective review
	3. The pandemic and the MaPs
		3.1. Regulatory relief and forbearance
		3.2. Fiscal and monetary policy response
		3.3. Health of the financial sector after the pandemic: The IMF and the rating agencies
	4. Risks and challenges after the pandemic
		4.1. Potential short-term systemic shocks
		4.2. NPLs and banks’ recapitalisation
	5. Capital controls: Musings on an instrument that refuses to die
		5.1. Chile’s “first generation” capital controls
		5.2. “Second generation” Chilean controls on capital inflows
	6. Concluding remarks
	Appendix
		The simple analytics of MaPs
	References
Macroprudential Policies and the COVID-19 Pandemic: Risks and Challenges for Emerging Markets: A Discussion
	Reference
Chapter 4 Macroprudential Policy during COVID-19: The Role of Policy Space
	1. Introduction
	2. Measuring the macroprudential stance across countries and over time
	3. Macroprudential policy and country-specific stress during COVID-19
	4. Macroprudential policy, policy space and other policy choices
		4.1. Related literature
		4.2. Macroprudential policy and macroprudential policy space
		4.3. Macroprudential policy and other policy space
		4.4. Macroprudential policy space and other policy choices
	5. Conclusions and implications for global spillovers
	Appendix
	References
Macroprudential Policy during COVID-19: The Role of Policy Space: A Discussion
	The role of non-banks in the financial sector
	The role of the exchange rate for macro-pru
	Concluding remarks
	References
Chapter 5 Macro-Financial Policy in an International Financial Centre: The UK Experience Since the Global Financial Crisis
	1. Introduction
	2. Monetary and macroprudential policy in the UK
		2.1. Monetary policy
		2.2. Macroprudential policy
		2.3. Bank supervision
	3. The UK’s position as an international financial centre
		3.1. Quantifying spillovers
		3.2. Accounting for spillovers in the macro-financial modelling toolkit
	4. International effects of policies and their interactions
	5. Empirical analysis on UK monetary policy interactions with macroprudential policy in receiving countries
		5.1. Data
		5.2. Methodology
		5.3. Results
	6. Conclusion
	References
Macro-Financial Policy in an International Financial Centre: The UK Experience Since the Global Financial Crisis: A Discussion
	References
Chapter 6 Sweden’s Experience of Deploying Monetary and Macroprudential Policies
	1. Introduction
	2. Past crises and the evolution of macroprudential policy
		2.1. The Swedish banking crisis in 1990s paved the way for important reforms1
		2.2. Sweden was better prepared, but the GFC shed light on important shortcomings
		2.3. The evolution of macroprudential policy
			2.3.1. The macroprudential mandate
				2.3.1.1. The macroprudential mandate in Sweden
		2.4. Structural weaknesses — (too) challenging for macroprudential policy
			2.4.1. A dysfunctional housing market
			2.4.2. A large cross-border banking system
	3. Institutional setup in Sweden
		3.1. Authorities responsible for financial stability
			3.1.1. The Ministry of Finance
			3.1.2. The Riksbank
				3.1.2.1. Monetary policy
				3.1.2.2. Financial stability
			3.1.3. FI (Finansinspektionen), micro- and macroprudential policy
				3.1.3.1. Microprudential policy
				3.1.3.2. Macroprudential policy
			3.1.4. The Swedish National Debt Office, framework for resolution and deposit insurance
				3.1.4.1. The resolution reserve
				3.1.4.2. The deposit insurance fund
				3.1.4.3. The stability fund
			3.1.5. The financial stability council
	4. Regional differences and cooperation
		4.1. Nordic–Baltic differences
		4.2. Regional cooperation
			4.2.1. Regional groups of cooperation30
	5. Policy actions
		5.1. Background to macroeconomic measures in Sweden
		5.2. Macroprudential policies in Sweden
			5.2.1. Borrower-based measures
				5.2.1.1. Loan-to-value limit
				5.2.1.2. Amortisation requirements40
			5.2.2. Lender-based measures
		5.3. Macroprudential policy actions taken in the Nordic–Baltic region
	6. Limitations of macroprudential policy
		6.1. Regulatory challenges
			6.1.1. Potential leakage connected to borrower-based measures in Sweden
			6.1.2. Regulatory arbitrage and lender-based measures
	7. The pandemic has highlighted the importance of a resilient financial system
	8. Conclusions
	References
Sweden’s Experience of Deploying Monetary and Macroprudential Policies: A Discussion
Chapter 7 The “Twin-Pillar” Framework of Monetary and Macroprudential Policies in China
	1. Introduction
	2. Economic and financial performance during the reform period
	3. Construction of the twin-pillar policy framework
		3.1. Transition of the monetary policy
			3.1.1. The period of the central credit plan
			3.1.2. The period of direct credit control
			3.1.3. The period of indirect control of money and credit
			3.1.4. The period of the modern central banking system
		3.2. Evolution of the macroprudential policy
	4. Challenges for the new policy framework
		4.1. Choices of appropriate MPMs
		4.2. Dealing with black swan or grey rhino risks
	5. How to prevent a systemic financial crisis?
	References
The “Twin-Pillar” Framework of Monetary and Macroprudential Policies in China: A Discussion
	References
Chapter 8 Timely, Sustained and Effective Macroprudential Policy: Exploring the Political Economy of Hong Kong’s Prudential Standards in the 1990s
	1. Introduction
	2. The global context
		2.1. Fed ease and the dollar depreciation
		2.2. Basel I and consideration of LTV standards in the UK and the US
	3. The Hong Kong context
		3.1. Hong Kong’s institutional framework
		3.2. Financial instability in Hong Kong
		3.3. Hong Kong’s linked exchange rate, private debt and the asset price cycle
		3.4. Basel I in Hong Kong: “Warts and all”
	4. Adopting the 70 percent LTV: “self-regulation victory”?
	5. Guiding bank lending, formalising LTVs and setting affordability and a new LTV
		5.1. Guiding bank lending portfolios: Property loans at 40 percent of loans
		5.2. Formalising the 70 percent LTV as government policy
		5.3. Setting affordability criterion and a lower LTV
	6. Was the policy effective?
	7. Hong Kong, Singapore and Croatia
	8. Conclusion
	References
Timely, Sustained and Effective Macroprudential Policy: Exploring the Political Economy of Hong Kong’s Prudential Standards in the 1990s: A Discussion
	The importance of macroprudential policies
	Challenges and mitigation: Calibration of macroprudential policies
	Conclusion
Chapter 9 Macroprudential Policies for the External Sector: India’s Approach and Experience
	1. Empirical motivation and conceptual framework
	2. India’s approach to external sector resilience: Calibrated capital controls
		2.1. Caps on exposure to global shocks
		2.2. Restrictions on investors by their horizon of investment
		2.3. Restrictions on maturity of the underlying investment
		2.4. Voluntary retention route for FPIs
		2.5. Regulatory arbitrage between domestic and overseas corporate external debt
		2.6. Restricting high liquidity demanders in external corporate debt
	3. An event study of India’s capital control change around the Taper Tantrum
	4. Conclusion
	References
Macroprudential Policies for the External Sector: India’s Approach and Experience: A Discussion
	Intellectual shift on capital flow management policies
	First issue: Appropriate choices under the Impossible Trinity Trilemma
	Second issue: Monetary policy to defend the exchange rate
	Third issue: Sovereign borrowing in foreign currency — Original sin?
	Fourth issue: IMF’s institutional view on capital account management
	Fifth issue: Currency wars — Sharing of the burden of adjustment between advanced economies and EMEs?
	References
Chapter 10 Legacy of Early Crisis and Incomplete Institutional Reforms on the Financial Sector in Indonesia
	1. Background and objective
	2. Bank Indonesia’s policy mix and the role of macroprudential policies
	3. Navigating the unholy trinity in Indonesia
	4. Milestones in Indonesia’s institutional overhauls and unintended consequences
		4.1. Bank Indonesia’s Liquidity Support (BLBI) of 1998
		4.2. The case of Bank Century
		4.3. Coordination between OJK and Bank Indonesia
		4.4. Decision-making process in the FSSF
		4.5. Regulatory forbearance
	5. Brief concluding remarks
	References
Legacy of Early Crisis and Incomplete Institutional Reforms on the Financial Sector in Indonesia: A Discussion
	The central bank policy mix
	Coordination in achieving financial stability
	Final remarks
	References
Chapter 11 Lessons from Macro-Financial Policy in Korea
	1. Introduction
	2. Macro-financial landscape
	3. Monetary and macroprudential policy framework
	4. Experience of macroprudential policymaking in Korea
	5. Changing patterns of financial intermediation and the bond market
	6. Dollar funding and FX hedging of outward bond investment
	7. Conclusion: Lessons learned and challenges ahead
	References
Lessons from Macro-Financial Policy in Korea: A Discussion
	Original sin redux: The Korean case
	FX-related macroprudential policy: Limitation and the need for further development
	Foreign portfolio investment and NBFIs: Qualitative improvements needed
	Concluding remarks: New vulnerabilities and the importance of fundamentals
	References
Chapter 12 Macroprudential Policies and Financial Stability in a Small and Open Economy: The Case of Singapore
	1. Introduction
	2. MaPPs in Singapore12
		2.1. Governance structure of MaPPs
		2.2. Types and evolution of property-related MaPPs in Singapore19
	3. Literature review
	4. Effectiveness of MaPPs in Singapore: An empirical investigation
		4.1. Data and methodology
		4.2. Empirical results
		4.3. Robustness
	5. Lessons and implications from the Singapore experience
	6. Concluding remarks
	References
Macroprudential Policies and Financial Stability in a Small and Open Economy: The Case of Singapore: A Discussion
	Summary
	Comments
	References
Chapter 13 Monetary Policy Frameworks in Latin America: Evolution, Resilience and Future Challenges
	1. Introduction
	2. Strengthening macro-financial fundamentals
	3. Strengthening the monetary policy frameworks
		3.1. The pre-GFC commodity boom
		3.2. The GFC and the challenges arising in its aftermath
		3.3. The post-crisis evolution of policy frameworks
	4. The COVID-19 pandemic
	5. Conclusions and challenges ahead
	References
Monetary Policy Frameworks in Latin America: Evolution, Resilience and Future Challenges: A Discussion
	Good policies and good luck
	Take a stance on the “New” MPF for financial stability
	Synchronicity of policy and politics
	Where Latin America failed with COVID-19
	References
Chapter 14 Leave No Stone Unturned — Macroprudential Policy in Croatia Between the Global Financial Crisis and COVID-19
	1. Introduction
	2. Systemic risk developments in Croatia from 2015 to 2020
	3. Financial stability challenges since 2015
		3.1. CCyB — Rules vs. discretion
		3.2. Keep an eye on the consumer
		3.3. Real estate market — Dark corners of macroprudential policy
		3.4. Do not forget the granularity — The Croatian Parmalat
		3.5. Real time stress test — COVID-19 pandemic
	4. What should we learn?
	References
Leave no Stone Unturned — Macroprudential Policy in Croatia Between the Global Financial Crisis and COVID-19: A Discussion
	Introduction
	Need for granular and timely data and tools for systemic risk analysis
	Crucial to understand interconnections beyond banking
	Policy interactions and coordination are important
	Issues for reflection for macroprudential policymakers
	Reference
Chapter 15 Towards a New Monetary-Macroprudential Policy Framework: Perspectives on Integrated Inflation Targeting
	1. Introduction
	2. IT: Brief overview of performance and challenges
		2.1. Main features of IT regimes
		2.2. Performance of IT regimes
			2.2.1. Macroeconomic outcomes
			2.2.2. Central bank policy response
		2.3. Challenges to conventional IT regimes
			2.3.1. Building and maintaining credibility
			2.3.2. Mitigating exchange rate volatility
			2.3.3. Price stability and financial stability
			2.3.4. Monetary and macroprudential policies: Complements or substitutes?
				2.3.4.1. Tinbergen’s rule and the nature of shocks
				2.3.4.2. Should monetary policy lean against the wind?
	3. IIT: Definition and key features
		3.1. Joint calibration of policy instruments
		3.2. Explicit but contingent financial stability mandate
		3.3. Foreign exchange intervention and capital controls
			3.3.1. Foreign exchange intervention
			3.3.2. Temporary capital controls
		3.4. Transparency and communication
	4. The mechanics of IIT regimes
		4.1. A simple integrated macro model
			4.1.1. Model structure
				4.1.1.1. Firms
				4.1.1.2. Households
				4.1.1.3. Commercial banks
				4.1.1.4. Central bank and regulator
				4.1.1.5. Market-clearing conditions
			4.1.2. Macroeconomic equilibrium
			4.1.3 Monetary and macroprudential policies
		4.2. Quantitative models for integrated policy analysis
	5. Operational challenges to IIT implementation
		5.1. Redefining central bank mandates
		5.2. Addressing transparency and communication challenges
		5.3. Implementing integrated models in central banks
		5.4. What role for international coordination?
	6. Towards an integrated macro-financial policy framework
		References
Towards a New Monetary-Macroprudential Policy Framework: Perspectives on Integrated Inflation Targeting: A Discussion
	References