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
Brief summary of paper
 Monetary policy (interest rate) versus
Reserve requirement policy (RRP) in
financially vulnerable economies.
 Show how and why just using interest rate in
a ”text book” fashion to stabilize output and
inflation in these economies can be difficult.
 Large effects of interest rate on capital flows
or exchange rates. (”fear of free falling” or
”fear of capital inflows”)
Brief summary of paper
 Use a panel of 4 financially vulnerable
economies (Argentina, Brazil, Columbia
and Uruguay) spanning 1992 to 2011
(quarterly)
 Find that RRP is used instead of interest
rate in order to stabilize output.
 Key to this finding is distinguishing
between endogenous and exogenous
RRP
Brief summary of paper
 Endogenous RRP: changes in RR in
response to deviations in GDP growth.
Referred to as Macroprudential policy.
 Exogenous RRP: changes in RRP for
other purposes (financial liberalization,
microprudential purposes, liquidity
regulation)
 Distinction is done empirically using
narrative data (a la Roemer and Roemer).
Comments
 Contribution: Show empirically how RRP
substitutes conventional monetary policy
in financially vulnerable economies.
Critical comments: Main point
 Is this paper about macroprudential
policy?
 Macroprudential policy: policy aimed at
banks to curb build-up of systemic risks
during booms or making banks robust
enough to maintain lending in bad times.
 The endogenous RRP does not do that, it
substitutes for conventional monetary
policy to stabilize output.
Critical comments: Main point
 Maybe instead some of the exogenous
RRP changes could be considered
macroprudential?
 Focus on different target than GDP.
 Another paper.
Critical comments: Other points
 Comparing effectiveness of monetary
policy and ”exogenous” RRP on GDP. But
monetary policy id endogenous. Are you
comparing ”apples to pears”?
 Discrepancies between numbers in
graphs and text.
 Definition of long run?