Global lending conditions and international coordination of financial regulation policies

by Enisse Kharroubi
Using a model of strategic interactions between two countries, I investigate the gains to international coordination of financial regulation policies, and how these gains depend on global lending conditions. When global lending conditions are determined non-cooperatively, I show that coordinating regulatory policies leads to a Pareto improvement relative to the case of no cooperation. In the non-cooperative equilibrium, one region – the core – determines global lending conditions, leaving the other region – the periphery – in a sub-optimal situation.