A fistful of dollars: transmission of global funding shocks to emerging markets

Aakriti Mathur and Shekhar Hari Kumar

Emerging markets (EMs) have become more exposed to the global financial cycle in recent years. Positive liquidity shocks – that is, a loosening of global funding market conditions – have led to exchange rate appreciations, reductions in long-term bond yields, stock market booms, and increased gross capital flows to EMs (Bhattarai et al (2018)). Negative liquidity shocks on the other hand constitute a tightening of financial conditions, reducing lending and real investment (Bruno and Shin (2015) and Avdjiev et al (2018)).

Continue reading “A fistful of dollars: transmission of global funding shocks to emerging markets”

Regulatory arbitrage in action: evidence from cross-border lending and macroprudential policy

Dennis Reinhardt and Rhiannon Sowerbutts.

We find evidence that certain types of macroprudential regulation are avoided by borrowing from abroad. Borrowing by the non-bank sector from abroad increases after an increase in capital requirement, but not after an increase in lending standards. This is likely to be because of the way that the two regulations are applied and is supportive of strong frameworks for reciprocating capital regulation.

Continue reading “Regulatory arbitrage in action: evidence from cross-border lending and macroprudential policy”