Cordella, TitoFederico, PabloVegh, CarlosVuletin, Guillermo2014-03-182014-03-182014-02https://hdl.handle.net/10986/17302Using a new, large data set on quarterly reserve requirements for the period 1970-2011, this paper provides new evidence on the use of reserve requirements as a countercyclical macroprudential tool in developing countries. The appeal of reserve requirements lies in the pro-cyclical behavior of the exchange rate over the business cycle in developing countries. This enormously complicates the use of interest rates as a countercyclical instrument (because of its effect on the exchange rate) and calls for a second instrument. The paper suggests that conflicts may arise between the microprudential and macroprudential policy stances.en-USCC BY 3.0 IGOADVERSE EFFECTAGENCY PROBLEMSARBITRAGEASYMMETRIC INFORMATIONBAILOUTBANK INTEREST RATEBANK RATEBANK RISKBANKING REGULATIONBANKING SECTORBANKING SYSTEMBOOM-BUST CYCLESBUSINESS CYCLECAPITAL ACCOUNTCAPITAL ACCOUNT OPENNESSCAPITAL CONTROLSCAPITAL FLOWCAPITAL FLOWSCAPITAL INFLOWSCAPITAL MOBILITYCAPITAL OUTFLOWSCAPITAL REQUIREMENTCAPITAL REQUIREMENTSCAPITAL STRUCTURECASH WITHDRAWALSCENTRAL BANKCENTRAL BANKSCOLLATERALCOLLECTIVE ACTIONCOMMODITYCOMMODITY PRICESCONSUMER LOANCONSUMER LOANSCONVERTIBILITY PLANCREDIBILITYCREDIT CARDSCREDIT EXPANSIONCREDIT GROWTHCREDIT MARKETSCURRENCYCURRENCY APPRECIATIONCURRENCY CRISESCURRENCY CRISISCURRENCY DEPRECIATIONDEMAND FOR CREDITDEPOSITDEPOSIT INSURANCEDEPOSIT INTERESTDEPOSIT INTEREST RATESDEPOSITORSDERIVATIVEDERIVATIVE MARKETSDEVELOPING COUNTRIESDEVELOPING COUNTRYDEVELOPING ECONOMIESDIFFERENT CURRENCIESDOMESTIC BONDSDOMESTIC CURRENCIESDOMESTIC CURRENCYDOMESTIC-CURRENCYDUMMY VARIABLESECONOMETRIC MODELECONOMIC PERFORMANCEEMERGING ECONOMIESEMERGING MARKETEMERGING MARKET ECONOMIESEMERGING MARKETSEURO ZONEEXCHANGE ARRANGEMENTSEXCHANGE RATEEXCHANGE RATE FLUCTUATIONSEXCHANGE RATE REGIMEEXCHANGE RATE REGIMESEXCHANGE RATE SHOCKSEXCHANGE RATESEXPOSUREFEDERAL RESERVEFEDERAL RESERVE SYSTEMFINANCIAL CONTRACTSFINANCIAL CRISESFINANCIAL CRISISFINANCIAL FLOWSFINANCIAL INTERMEDIARIESFINANCIAL LIBERALIZATIONFINANCIAL MARKETFINANCIAL STABILITYFINANCIAL SUPPORTFINANCIAL SYSTEMFINANCIAL TRANSACTIONSFISCAL POLICYFIXED EXCHANGE RATEFIXED EXCHANGE RATESFLOATING EXCHANGE RATEFOREIGN ASSETSFOREIGN CURRENCYFOREIGN DEBTFOREIGN EXCHANGEFOREIGN EXCHANGE MARKETFOREIGN EXCHANGE MARKET INTERVENTIONFOREIGN EXCHANGE MARKET INTERVENTIONSFOREIGN EXCHANGE MARKETSFOREIGN INVESTORSFOREIGN RESERVEFOREIGN RESERVESGOVERNMENT SPENDINGGROWTH RATEHIGH CAPITAL MOBILITYHOLDINGIMPERFECT CAPITAL MOBILITYINDEPENDENT MONETARY POLICYINDUSTRIAL COUNTRIESINDUSTRIAL COUNTRYINFLATIONINFLATION EXPECTATIONSINSTRUMENTINSURERINTEREST RATEINTEREST RATE POLICYINTEREST RATE SPREADINTEREST RATE SPREADSINTEREST RATESINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL CAPITAL FLOWSINTERNATIONAL FINANCEINTERNATIONAL RESERVESLIMITED LIABILITIESLIMITED LIABILITYLIQUIDITY RISKLOAN PORTFOLIOMACROECONOMIC POLICYMACROECONOMIC STABILIZATIONMACROECONOMIC VARIABLESMACROECONOMIC VOLATILITYMARK-TO-MARKETMARKET DISCIPLINEMARKET FAILURESMARKET LIQUIDITYMARKET MECHANISMSMARKET REQUIREMENTSMATURITIESMATURITYMATURITY MISMATCHESMINIMUM CAPITAL REQUIREMENTSMONETARY AUTHORITIESMONETARY POLICIESMONETARY POLICYMONETARY TRANSMISSIONMORAL HAZARDMORAL SUASIONMULTIPLE EXCHANGE RATESNEGATIVE SHOCKSNOMINAL DEPRECIATIONNOMINAL EXCHANGE RATENOMINAL EXCHANGE RATESOLIGOPOLYOPEN CAPITAL ACCOUNTOPEN ECONOMYOUTPUTOUTSTANDING CREDITOVERSEAS BORROWINGPERFECT CAPITAL MOBILITYPOLICY RESPONSEPOLICY RESPONSESPOLITICAL ECONOMYPORTFOLIOPORTFOLIO INVESTMENTSPORTFOLIO RISKPRIVATE CREDITPRIVATE CREDIT GROWTHPROFIT OPPORTUNITIESPRUDENTIAL REGULATIONPUBLIC DEBTRATE OF DEPRECIATIONREAL ESTATEREAL ESTATE LOANSREAL EXCHANGE RATERECESSIONREGULATORREGULATORSREGULATORY FRAMEWORKRESERVERESERVE REQUIREMENTRESERVE REQUIREMENTSRESERVESRETURNRETURNSRISK WEIGHTSSAVINGSSCATTER PLOTSHORT MATURITYSHORT-TERM BANK DEPOSITSSHORT-TERM CAPITALSHORT-TERM INTEREST RATESSPOT MARKETSTANDARD DEVIATIONSYSTEMIC RISKSYSTEMIC RISKSTAXTAXATION POLICYTERM DEPOSITSTIME DEPOSITSTRUST FUNDVOLATILE CAPITALWARRANTSWHOLESALE FUNDING10.1596/1813-9450-6793