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Intro

Intro . Paper is a very relevant contribution …. Cyclicality of reserve requirements (in a GDP sense ) Implicitly assuming stabilization properties Complementarity with monetary policy ( interest rate movements ) … to the core issues of an ongoing policy debate OUTLOOK

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Intro

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  1. Intro • Paperis a veryrelevantcontribution…. • Cyclicality of reserve requirements (in a GDP sense) • Implicitlyassumingstabilizationproperties • Complementaritywithmonetarypolicy (interestratemovements) • …tothecoreissues of anongoingpolicy debate • OUTLOOK • Environment of financialinstability, capital flowsvolatility • Slowreaction of monetarypolicytothecycle (in particular totheupwardphase) • Can itbeexplainedbyalternativetools, v.g. Reserve requirements • LONG TERM • Shiftingparadigms in central banks • Links betweenmonetarypolicy and financialstability (macroprudentialpolicy) • Commentsaimed at clarification and furtherresearch • Onsemantics and beyond • Onsymmetry and effectiveness

  2. On semantics. Reserve requirements as macroprudential policy • Definitions of macroprudentialpolicy: • Thispaper: “The use of prudentialtools,… formacroeconomicstabilizationpurposes” • As opposedtothedicotomy macro/micro approach: • “The use of prudential tools with the explicit objective of promoting the stability of the financial system as a whole, not of the individual institutions” BIS (2010) • “The prime objective of macroprudential policy is to limit build-up of system-wide (systemic) financial risk” IMF (2011) • The mainobjective of thepaper: • Compare reserve requirementsmovements and monetarypolicymovements • Analysecomplementarityorsubstitution

  3. On semantics. Reserve requirements as macroprudential policy • Therefore: • Reserve requirements Interestrates • Reserve requirements= Macroprudentialtool • Overstretchingthemacroprudential concept • Isthisaninnocuoussemanticquestion?. Not at all • Central banksframeworks are underreconstruction, and theseimprecisions lead toconfusion • Reserve requirements can becomplementarybecausethey are embedded in themonetarytransmissionmechanism, viamultiplier. • Reserve requirements as alternativemonetarypolicytool, withsomemacroprudential (v.g.financialstability) impact • Interestratemovements • ARE a • Macroprudentialtool?

  4. On semantics. Reserve requirements as macroprudential policy Fitting macroprudential policy. Advanced economies FinancialStability Price stability goals Macroprudential Policy Micro prudential Regulation & supervisión interest rates instruments REGULATION & SUPERVISION MONETARY POLICY 5

  5. The shifting setting for central banks FittingMacroprudentialpolicy. Emerging FinancialStability Price stability goals MacroprudentialPolicy LTV caps Micro prudential K requirements Liquidity ratios Dynamicprovisions Regulation & supervisión interest rates Reserve requirements instruments REGULATION & SUPERVISION MONETARY POLICY back 6

  6. On further work. The empirical link between RR and interest rates • Use databaseto determine empiricalrelationbetween RR and interestrates • Someempiricalevidence: China: 2:1; Peru 1:1 Brazil 0,75:1 • Gª Escribano & Tovar (2012) analyseimpact of reserves, but do notanalysesymmetries

  7. On further work. The empirical link between RR and interest rates • Use databaseto determine relationsbetween RR and interestrates • Someempiricalevidence China: 2:1; Peru 1:1 Brazil 0,75:1 • Gª Escribano & Tovar (2012) analyseimpact of reserves, but do notanalysesymmetries

  8. On further work. The empirical link between RR and interest rates • Symmetry • Downside: fear of falling • Upside: fear of capital inflows • Withthesamestrength? Isnow more prominentthelatter? • …compare bothcycles

  9. Final considerations Large policy implications, large pending exploitation Be careful when conveying the messages Should help to clarify the roadmap not to add confusion RR and financial deepening Some years ago substantial reserve requirements associated with underdeveloped banking system, bound to vanish Entailed costs (banking tax, financial distortions…) What is the view now, given its proven utility? Would its resilience limit banking deepening

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