Presentation on theme: "Comments to Federico, Vegh and Vuletin: ”Effects and role of macroprudential policy: Evidence from reserve requirements based on a narrative approach”"— Presentation transcript:
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 how 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?