Abstract
The impact of prudential policies in open economies depends not only on their intrinsic efficacy but also on the feedback of the policy through close financial partners. Using a dataset of advanced countries, we find that prudential policy measures reduce systemic risk in the financial system in the 2000-2014 time period. We show that indirect effect in case of uniform interventions enforces the direct one and accounts for up to 87% of total risk reduction. The policies, though, remain insignificant for GIIPS countries, which stay dependent on actions and responses of their financial counterparties.
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