BIS Working Paper No. 1097 examines the role of macroprudential regulation in dampening global financial shocks, particularly in emerging markets. The authors find that tighter macroprudential regulation reduces the sensitivity of GDP growth to capital flow shocks and movements in the VIX. A broad set of macroprudential tools, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky credit, contribute to this result. The authors also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically.
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