The international dimensions of macroprudential policies

The large economic costs associated with the Global Financial Crisis have generated renewed interest in macroprudential policies and their international coordination. Based on a core-periphery model that emphasizes the role of international financial centers, the authors study the effects of coordinated and non-coordinated macroprudential policies when financial intermediation is subject to frictions. The authors find that even when the only frictions in the economy consist of financial frictions and financial dependency of periphery banks, the policy prescriptions under international policy coordination can differ quite markedly from those emerging from self-oriented policy decisions.