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Capital-account and counter-cyclical prudential regulations in developing countries

February 2003 | Historical Series
Publication cover
Corporate author:
  • NU. CEPAL
  • UNU. World Institute for Development Economics Research
UN symbol.:
LC/L.1820-P
ISBN:
9211213924
Pages:
33 p.
Editorial:
ECLAC
Type:
Historical Series
Collection:
  • ECLAC series
    • Historical Series

Description

Abstract
This paper explores the complementary use of two instruments to manage capital-account volatility in developing countries: capital account regulations and counter-cyclical prudential regulation of domestic financial intermediaries. Capital-account regulations can provide useful instruments in terms of both improving debt profiles and facilitating the adoption of (possibly temporary); counter-cyclical macroeconomic policies. Prudential regulation and supervision should take into account not only the microeconomic risks, but also the macroeconomic risks associated with boom-bust cycles. It should thus introduce counter-cyclical elements into prudential regulation and supervision, together with strict rules to prevent currency mismatches and reduce maturity mismatches. These instruments should be seen as a complement to counter-cyclical macroeconomic policies and, certainly, neither of them can nullify the risks that pro-cyclical macroeconomic policies may generate.

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