This paper examines whether the coordinated use of macroprudential policies can help
lessen the incidence of banking crises. It is well-known that rapid domestic credit growth
and house price growth positively influence the chances of a banking crisis. As well, a
crisis in other countries with high trade and financial linkages raises the crisis probability.
However, whether such “contagion effects” can operate to reduce crisis probabilities when
highly linked countries execute macroprudential policies together has not been fully
explored. A dataset documenting countries’ use of macroprudential tools suggests that a
“coordinated” implementation of macroprudential policies across highly-linked countries
can help to stem the risks of widespread banking crises, although this positive effect may
take some time to materialize.
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