This issue of Economía consists of four papers, two of which are related to macroeconomic instability, a highly relevant issue in the context of today’s macroeconomic turmoil. One of the papers, by Herman Kamil and Kulwant Rai, studies the effect of the global financial crisis on foreign bank lending to Latin America and the Caribbean. The second paper, by Santiago Fernández de Lis and Alicia García-Herrero, studies macroprudential tools as a way to limit credit procyclicality, relying on the Spanish case to illuminate the discussion for countries in Latin America. The other two papers in this issue, one by Christian Daude and one by Diego Restuccia, study different dimensions of productivity growth in Latin America.
“Global Deleveraging and Foreign Banks’ Lending to Latin American Countries,” by Kamil and Rai, looks at how the global financial crisis affected foreign bank lending to Latin America and the Caribbean. The authors’ econometric analysis uses quarterly data from the Bank of International Settlements covering twelve Latin American countries over the period 1999–2009 to assess how foreign bank lending to the region was affected by three factors: the freezing of international money markets; the deterioration of the financial health of parent banks in advanced economies; and more restrictive lending standards in home countries’ banking systems.
Kamil and Rai show that those three factors had a large impact on foreign bank lending to Latin America. However, they also find that foreign banks that conducted a higher share of their lending through their local affiliates in domestic currency were less subject to home country shocks. For instance, their econometric estimates suggest that an increase in the TED spread has a large effect on cross-border foreign bank lending but no effect when lending is channeled through local affiliates. Along similar lines, the authors find that the transmission of financial shock was more muted in countries in which foreign-owned local affiliates relied more heavily on local funding (retail deposits) than on parent bank resources or wholesale market funding. Kamil and Rai’s results suggest that policymakers interested in assessing [End Page vii] the costs and benefits of financial globalization need to pay attention to the mode in which foreign banks enter the local markets and to be aware that cross-border lending is much more responsive to global shocks than is lending through local affiliates of foreign banks.
The discussion, by María Soledad Martínez Pería, emphasizes the importance of the policy implications of the paper and suggests that the paper opens many avenues for future research. In particular, she suggests that future research should provide a starker comparison between crisis and tranquil periods, explore potential sources of heterogeneity among home countries, and provide more evidence to substantiate the claim that foreign bank lending to Latin America was more resilient than lending to other regions.
“Dynamic Provisioning: A Buffer Rather Than a Countercyclical Tool?” by Santiago Fernández de Lis and Alicia García-Herrero, focuses on macro-prudential tools and discusses how they can be used to limit credit procyclicality. The authors provide a detailed description of dynamic provisions in Spain and compare the experience under the Spanish system with the experiences of Colombia and Peru. The authors go into great detail in discussing various issues related to the design of the system and compare the cost and benefits of a rules-based system with those of one that allows for more discretionality. In their evaluation of the Spanish system, Fernández de Lis and García-Herrero conclude that while dynamic provisions helped in creating a cushion during a period of rapid credit growth, the Spanish macroprudential tool was not successful in discouraging excessive credit growth or in preventing a housing boom. When the crisis hit, accumulated provisions were rapidly depleted, and a steep increase in provisions was required during the crisis, a fact that calls into question the supposedly anticyclical features of the system.
In his discussion of the paper, Augusto de la Torre points out that the presence of financial procyclicality is not sufficient to justify the introduction of dynamic provisions. He then suggests...