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Europe > Switzerland

You are looking at 1 - 7 of 7 items for :

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Cover IMF Working Papers
Calibrating Macroprudential Policies in Europe Amid Rising Housing Market Vulnerability
Ms. Laura Valderrama
Housing market developments are in the spotlight in Europe. Over-stretched valuations amid tightening financial conditions and a cost-of-living crisis have increased risks of a sustained downturn and exposed challenging trade-offs for macroprudential policy between ensuring financial system resilience and smoothing the macro-financial cycle. Against this backdrop, this paper provides detailed considerations regarding how to (re)set macroprudential policy tools in response to housing-related systemic risk in Europe, providing design solutions to avoid unintended consequences during a tightening phase, and navigating the trade-offs between managing the build-up of vulnerabilities and the macro-financial cycle in a downturn. It also proposes a novel framework to measure the effectiveness of tools and avoid overlaps by quantifying the risks addressed by different macroprudential instruments. Finally, it introduces a taxonomy allowing to assess a country’s macroprudential stance and whether adjustments to current policy settings are warranted—such as the relaxation of capital-based tools and possibly some borrower-based measures in the event of a more severe downturn.
Keywords:
Housing markets; household vulnerability; income distribution; economic cycle; financial stability; macroprudential policy.; Macroprudential policy; housing market vulnerability; Policy tool; calibrating Macroprudential policies in Europe amide; Macroprudential Policy stance framework; Countercyclical capital buffers; Mortgages; Housing prices; Credit; Europe; Global
Cover IMF Working Papers
Macroprudential Policies in Response to External Financial Shocks
Mr. Irineu E de Carvalho Filho
and
DingXuan Ng
This paper examines how countries use Macroprudential Policies (MaPs) to respond to external shocks such as US monetary policy surprises or fluctuations in capital flows. Constructing a model of a small open economy with financial frictions and a MaP authority that adjusts loan to value (LTV) ratio limits on borrowers and capital adequacy ratio (CAR) limits on banks, we show that using MaPs where stochastic external financial shocks are present entails a trade-off between macro-financial volatility and GDP growth. The terms of the trade-off are a function of a few country characteristics that amplify financial channels of external monetary shocks. Estimating MaP reaction functions for a panel of 41 countries in the period 2000–2017, we find that countercyclical macroprudential policy in response to surprise US monetary tightening is more likely for countries with net short currency mismatches (that is, foreign currency denominated liabilities larger than foreign currency denominated assets), consistent with the model’s predictions. The paper also finds that domestic credit and interest rates are more insulated from US monetary tightening for countries that employ MaPs countercyclically.
Keywords:
Macroprudential policy; external shocks; loan to value; figures entry; map authority; Model simulation; foreign currency; interest rate shock; bank profit; Credit; Real exchange rates; Financial statements; Bank credit; Self-employment; Global
Cover Policy Papers
The Rise of Public and Private Digital Money: A Strategy to Continue Delivering on The IMF’s Mandate
International Monetary Fund
Following the companion paper on the new policy challenges related to the adoption of digital forms of money, this paper presents an operational strategy for the IMF to continue delivering on its mandate of ensuring domestic and international financial and economic stability. The paper begins by summarizing the forces driving the adoption of digital forms of money, and the new policy questions that emerge. It then focusses on how the IMF’s core activities and output will need to evolve, including surveillance, capacity development, and analytical foundations. It ends by discusses how the IMF intends to partner with other organization, and to grow and structure internal resources to fulfill this vision.
Keywords:
digital money adoption; IMF surveillance; core activity; IMF's mandate; Policy question; Digital currencies; Financial sector stability; Financial Sector Assessment Program; International monetary system; Central Bank digital currencies; Global
Cover IMF Working Papers
Stress Testing and Calibration of Macroprudential Policy Tools
Lucyna Gornicka
and
Ms. Laura Valderrama
We present a semi-structural model of default risk, which is a function of loan and borrower characteristics, economic conditions, and the regulatory environment. We use this model to simulate bank credit losses for stress-testing purposes and to calibrate borrower-based macroprudential tools. The proposed approach is very flexible and is particularly useful when there is limited history of crisis episodes, when crises bring unanticipated shocks where past tail events offer little guidance and when structural shocks or changes in financial regulations have altered the loan default process. We apply the model to quantify mortgage lending risk in two distinct mortgage markets. For each application, we show a range of modeling adjustments that can be made to capture country-specific institutional features. The model uses bank portfolio data broken down by risk bucket and vintage, which enables us to take explicit account of the loan life cycle and to incorporate the housing and economic cycles. This feature facilitates a timely assessment of banks’ loss-absorbing capacity and the buildup of systemic risk conditional on policy. It also enables counterfactual analysis and the evaluation of macroprudential policy interventions.
Keywords:
WP; mortgage portfolio; second mortgage; margin call; stress testing; systemic risk; mortgage risk; calibration; simulation; macroprudential policy; loss rate; credit risk; house price; real estate; net present value; housing market; loan loss; Mortgages; Housing prices; Loans; Real estate prices; Global; negative equity; default rate
Cover IMF Working Papers
Friend or Foe? Cross-Border Linkages, Contagious Banking Crises, and “Coordinated” Macroprudential Policies
Mr. Seung M Choi
,
Ms. Laura E. Kodres
, and
Jing Lu
This paper examines whether the coordinated use of macroprudential policies can help lessen the incidence of banking crises. It is well-known that rapid domestic credit growth and house price growth positively influence the chances of a banking crisis. As well, a crisis in other countries with high trade and financial linkages raises the crisis probability. However, whether such “contagion effects” can operate to reduce crisis probabilities when highly linked countries execute macroprudential policies together has not been fully explored. A dataset documenting countries’ use of macroprudential tools suggests that a “coordinated” implementation of macroprudential policies across highly-linked countries can help to stem the risks of widespread banking crises, although this positive effect may take some time to materialize.
Keywords:
WP; break; banking crisis; center; house price growth; Trade Linkages; Financial Linkages; Financial Crisis; Macroprudential Policies; trade partner; credit growth; loan recipient; crisis probability; Housing prices; Banking crises; Credit; Macroprudential policy; Macroprudential policy instruments; Global
Cover IMF Research Bulletin
IMF Research Bulletin, June 2016
International Monetary Fund. Research Dept.
In the June 2016 issue of IMF Research Bulletin, Eugenio Cerutti interviews Lars E.O. Svensson. Lars, a professor at the Stockholm School of Economics, was a Visiting Scholar at the IMF. In the interview, he discusses monetary policy, financial stability, and life at the IMF. The Bulletin also features a listing of recent Working Papers, Staff Discussion Notes, and key IMF publications. The table of contents from the latest issue of IMF Economic Review is also included.
Keywords:
IRB; IMF title; readings from IMF; open economy macroeconomics; journal website; Zurich conference; Financial sector stability; Inflation targeting; Macroprudential policy; Central bank policy rate; Exchange rate adjustments; Global; Caribbean; Europe
Cover IMF Working Papers
An Overview of Macroprudential Policy Tools
Mr. Stijn Claessens
Macroprudential policies – caps on loan to value ratios, limits on credit growth and other balance sheets restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies – have become part of the policy paradigm in emerging markets and advanced countries alike. But knowledge is still limited on these tools. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They can also interact with various other policies, such as monetary and microprudential, raising coordination issues. Some countries, especially emerging markets, have used these tools and analyses suggest that some can reduce procyclicality and crisis risks. Yet, much remains to be studied, including tools’ costs ? by adversely affecting resource allocations; how to best adapt tools to country circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting tools.
Keywords:
WP; externality; monetary policy; bank; credit crunch; Financial stability; financial intermediation; externalities; market failures; procyclicality; systemic risks; capital requirement; resource allocation; interconnectedness externality; market failures policy; bank leverage; house price inflation; assets bank; foreign currency; Macroprudential policy; Systemic risk; Financial sector stability; Credit; Global