International Monetary Fund Financial Stability, Growth and Macroprudential Policy by Chang Ma John Hopkins University Discussant: Sami Ben Naceur Chief, IET Unit International Monetary Fund

Motivation/Contribution Provide a normative framework to analyse the interaction of financial instability and economic growth Quantity the policy intervention on long-tern economic growth.

Methodology Introduce endogenous growth into SOE- DGSE framework to capture the impact of sudden stops on economic growth The model is calibrated to countries who have experienced sudden stops. Social planner can use one or two macroprudential instruments: Capital controls Growth-enhancing expenditures

Key findings (one inst.) Quantitative analysis show that macroprudential policy can generate welfare gains around 0.1% permanent increase in consumption (higher financial stability and increase in consumption in the LT). Cost of macroprudential policy marginally reduces growth at around 0.01%.

Key findings (two inst.) The social planner can generate a large welfare gains, around 0.2% permanent increase in consumption. The temporary growth spurt lasts for 18 years.

Key Findings (implementation) To implement the macroprudential social planer’s allocations: We need 1.28 % capital control tax in steady state for one instrument. We need 1 % capital control tax and 1% subsidy on growth-enhancing expenditures for the multi-instrument social planner. Ex-post intervention reduces the size of ex-ante intervention (see Jeanne and Korinek , 2013).

Paper assessment (bright side) Important contribution to the literature Well implemented and calibrated model Well written Interesting policy recommendations

Paper assessment (Other side) Model economy is pretty standard and should have been put in the appendix. Difficulty following the model description: you talk about the model, then you switch to welfare analysis, then you go to one- shock. We have 3.1 Competitive equilibrium but where is 3.2 ?

Paper assessment (Other side) Quantitative analysis is also very confusing: calibrate, policy functions, event windows, growth and stability, welfare impact… You talk about macroprudential policies but you propose tax on capital flows (CFM): it seems that there is a confusion of CFM and Macro-Prud. 1% tax on capital flow: you didn’t specify on which flows: debt or equity ; LT vs ST ; duration and when to implement.

Paper assessment (Other side) Why are you focusing on taxing CF and not looking at other effective Macro-prud. instruments: (LTV, DTI, Risk weight, Dynamic provisioning…) Why 2 instruments and not more? Why introducing a subsidy on growth enhancing expenditures? How it will be implemented? Is there is any sequence on implementing the two instruments? How can we measure the quantitative implications of these policies?