The impacts of macroprudential regulations on extreme episodes in bank flows: Whose policy helps and whose policy harms?

Abstract

Using a sample of pairwise bank flows from source countries to recipient countries, we find mixed evidence on how macroprudential policies implemented by different counterparties affect the incidence of extreme episodes (i.e. surges or sudden stops) in international bank flows. Macroprudential regulations adopted by the capital recipient country contribute little to mitigate extreme episodes. Capital source country's regulation exacerbates the occurrence of surges and sudden stops. Tightened macroprudential stance of the United States demonstrates efficacy in mitigating both types of extreme episodes.