Global Banking, Financial Spillovers, and Macroprudential Policy Coordination

The transmission of financial shocks and the gains from international macropru-dential policy coordination are studied in a two-region, core-periphery model with a global bank, a two-level financial structure, and imperfect financial integration. The model replicates the stylized facts associated with global banking shocks, with respect to output, credit, house prices, and real exchange rate fluctuations in recipient coun-tries, as documented empirically. Numerical experiments, based on a parameterized version of the model, show that the gains from coordination increase with the degree of financial integration, which raises the scope for spillback effects from the periphery to the core, through trade and private capital flows. However, even when coordination is Pareto-improving, the resulting gains may be highly asymmetric across regions.

Agénor P-R., P. Jackson T., A. Pereira da Silva L. (2019) "Global Banking, Financial Spillovers, and Macroprudential Policy Coordination" Bank for International Settlements, Working Papers No 764, Revised May 2023.