International coordination of macroprudential policies with capital flows and financial asymmetries

Lack of coordination for prudential regulation hurts developing economies but benefits advanced economies. We consider a two-country macro model in which countries have limited ability to issue state-contingent contracts international markets, and equilibrium is constrained inefficient. Both incentives stabilize their economy by using limits, the emerging depends on bear global risk. Intermediating risk requires bearing systemic risk, financially developed are unwilling bear, preferring financial stability over credit flows. Advanced prefer tighter limits than would occur with coordination, harm