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Bent Vale , Norges Bank 30 November 2012

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.

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Bent Vale , Norges Bank 30 November 2012

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  1. Comments to Federico, Vegh and Vuletin: ”Effects and roleofmacroprudential policy: Evidence from reserve requirementsbasedon a narrative approach” Bent Vale, Norges Bank 30 November 2012 Views and conclusions are mine, and cannot be attributed to Norges Bank

  2. Briefsummaryofpaper • Monetary policy (interest rate) versus Reserve requirement policy (RRP) in financially vulnerable economies. • Show how and why just usinginterest rate in a ”text book” fashion to stabilize output and inflation in theseeconomiescan be difficult. • Large effectsofinterest rate oncapitalflows or exchange rates. (”fearoffree falling” or ”fearofcapitalinflows”)

  3. Briefsummaryofpaper • Usea panel of 4 financially vulnerable economies (Argentina, Brazil, Columbia and Uruguay) spanning 1992 to 2011 (quarterly) • Findthat RRP is used insteadofinterest rate in order to stabilize output. • Key to thisfinding is distinguishingbetweenendogenousand exogenousRRP

  4. Briefsummaryofpaper • Endogenous RRP: changes in RR in response to deviations in GDP growth. Referred to as Macroprudential policy. • ExogenousRRP: changes in RRP for other purposes (financialliberalization, microprudential purposes, liquidityregulation) • Distinction is doneempiricallyusing narrative data (a la Roemer and Roemer).

  5. Comments • Contribution: Show empiricallyhow RRP substitutesconventionalmonetary policy in financially vulnerable economies.

  6. Criticalcomments: Main point • Is thispaperaboutmacroprudential policy? • Macroprudentialpolicy: policy aimed at banks to curbbuild-upofsystemic risks during booms or making banks robust enough to maintainlending in bad times. • The endogenous RRP does not do that, it substitutes for conventionalmonetary policy to stabilize output.

  7. Criticalcomments: Main point • Maybeinsteadsomeoftheexogenous RRP changescould be consideredmacroprudential? • Focusondifferent target than GDP. • Anotherpaper.

  8. Criticalcomments: Otherpoints • Comparingeffectivenessofmonetary policy and ”exogenous” RRP onGDP. Butmonetarypolicy id endogenous. Are youcomparing ”apples to pears”? • Discrepanciesbetweennumbers in graphs and text. • Definitionoflong run?

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