Macro-prudential forex rules may shift vulnerability – BoE paper

Front of Bank of England London

Macro-prudential rules targeting foreign exchange may achieve their primary objectives, but simultaneously shift problems elsewhere, according to a recent Bank of England working paper.

Toni Ahnert, Kristin Forbes, Christian Friedrich and Dennis Reinhardt test whether the rules “shift the snowbank” – shovelling risks from one place to another, rather than curbing them outright.

The authors built a model of bank and market funding along the lines proposed by Nobel laureates Bengt Holmstrom and

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