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

Macro-prudential policies, their use, implementation and effectiveness, have been at the centre of a heated debate since the onset of the global financial crisis. The work that has been produced solely focused on the implications of macro-prudential regulation for short-term economic stability. This column sets the emphasis on the long-term effects of financial regulation and finds that macro-prudential regulation promotes economic growth by mitigating the adverse effects of financial volatility. The results support the argument that macro-prudential policy rules designed to ensure financial stability are beneficial to long-run economic growth.