Comments to Federico Vegh and Vuletin Effects and
- Slides: 8
Comments to Federico, Vegh and Vuletin: ”Effects and role of macroprudential policy: Evidence from reserve requirements based on a narrative approach” Bent Vale, Norges Bank 30 November 2012 Views and conclusions are mine, and cannot be attributed to Norges Bank
Brief summary of paper § Monetary policy (interest rate) versus Reserve requirement policy (RRP) in financially vulnerable economies. § Show and why just using interest rate in a ”text book” fashion to stabilize output and inflation in these economies can be difficult. § Large effects of interest rate on capital flows or exchange rates. (”fear of free falling” or ”fear of capital inflows”)
Brief summary of paper § Use a panel of 4 financially vulnerable economies (Argentina, Brazil, Columbia and Uruguay) spanning 1992 to 2011 (quarterly) § Find that RRP is used instead of interest rate in order to stabilize output. § Key to this finding is distinguishing between endogenous and exogenous RRP
Brief summary of paper § Endogenous RRP: changes in RR in response to deviations in GDP growth. Referred to as Macroprudential policy. § Exogenous RRP: changes in RRP for other purposes (financial liberalization, microprudential purposes, liquidity regulation) § Distinction is done empirically using narrative data (a la Roemer and Roemer).
Comments § Contribution: Show empirically how RRP substitutes conventional monetary policy in financially vulnerable economies.
Critical comments: Main point § Is this paper about macroprudential policy? § Macroprudential policy: policy aimed at banks to curb build-up of systemic risks during booms or making banks robust enough to maintain lending in bad times. § The endogenous RRP does not do that, it substitutes for conventional monetary policy to stabilize output.
Critical comments: Main point § Maybe instead some of the exogenous RRP changes could be considered macroprudential? § Focus on different target than GDP. § Another paper.
Critical comments: Other points § Comparing effectiveness of monetary policy and ”exogenous” RRP on GDP. But monetary policy id endogenous. Are you comparing ”apples to pears”? § Discrepancies between numbers in graphs and text. § Definition of long run?
