How Effective are Macroprudential Policies? An Empirical Investigation

By Ozge Akinci, Jane Olmstead-Rumsey. 2017

474 citations recorded by the source corpus.

In recent years, policymakers have generally relied on macroprudential policies to address financial stability concerns. However, our understanding of these policies and their efficacy is limited. In this paper, we construct a novel index of domestic macroprudential policies in 57 advanced and emerging economies covering the period from 2000:Q1 to 2013:Q4, with tightenings and easings recorded separately. The effectiveness of these policies in curbing bank credit growth and house price inflation is then assessed using a dynamic panel data model. The main findings of the paper are: (1) Macroprudential policies have been used far more actively after the global financial crisis in both advanced and emerging market economies. (2) These policies have primarily targeted the housing sector, especially in the advanced economies. (3) Macroprudential policies are usually changed in tandem with bank reserve requirements, capital flow management measures, and monetary policy. (4) Empirical analysis suggests that macroprudential tightening is associated with lower bank credit growth, housing credit growth, and house price inflation. (5) Targeted policies--for example, those specifically intended to limit the growth of housing credit--seem to be more effective. (6) In emerging economies, capital inflow restrictions targeting the banking sector are also associated with lower credit growth, although portfolio flow restrictions are not.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/4b24036987cdf3e48c3a075fafe941f2519423d6

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Citations in the corpus

Economic uncertainty and bank risk: Evidence from emerging economies (2020, unknown): “shown by prior works, macroprudential policies can effectively stabilize credit cycles and volatility of the aggregate economy (e.g. Hahm et al. 2012; Boar et al., 2017; Akinci and Olmstead-Rumsey, 2018).”
Changes in Prudential Policy Instruments - A New Cross-Country Database (2016, methodology): “…policy indices reported in the database, we use a method to map policy changes into simple indices that has recently been used in studies focusing on the intensity of capital controls (Ahmed and Zlate, 2014; Pasricha, et al., 2015) and macroprudential policies (Akinci and Olmstead-Rumsey, 2015).”
Effective Macroprudential Policy: Cross‐Sector Substitution from Price and Quantity Measures (2016, background): “…effects of MaPs on variables such as banking credit and housing prices (e.g., Morgan, Regis, and Salike 2015, Cerutti, Claessens, and Laeven 2017, Akinci and Olmstead-Rumsey 2018), and whether measures “leak” through foreign banks (Aiyar, Calomiris, and Wieladek 2014, Reinhardt and Sowerbutts…”
The benefits are at the tail: Uncovering the impact of macroprudential policy on growth-at-risk (2020, methodology): “Also, using a broad sample of countries, Akinci and Olmstead-Rumsey (2018) identify that macroprudential measures are effective curbing credit growth and house prices appreciation and that, in particular, borrower-based measures are the most effective. Also, a set of studies have assessed the impact”
Cross-Border Prudential Policy Spillovers: How Much? How Important? Evidence from the International Banking Research Network (2016, methodology): “specific stages of the financial or business cycle, as in Akinci and Olmstead-Rumsey (2015) or Cerutti, Claessens, and Laeven (2015).”
Macroprudential policy and bank systemic risk (2020, unknown): “(2017) and Akinci and Olmstead-Rumsey (2018). This specification allows us to identify the immediate impact as well as the longer-run dynamics.”