Estimation of Effects of Recent Macroprudential Policies in a Sample of Advanced Open Economies

Ragnar Nymoen,Jon Ivar Sjåberg,Kari Pedersen

doi:10.3390/ijfs7020023

Ragnar Nymoen, Jon Ivar Sjåberg + Show 1 more

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https://doi.org/10.3390/ijfs7020023

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Abstract

We used a time-series cross-section dataset to test several hypotheses pertaining to the role of macroprudential policy instruments in the management of the financial cycle in advanced open economies. The short-run effects are most significant for caps on loan to value and income (LTV and LTI) and risk weights (RW). The long-run coefficients of credit growth with respect to the indicators of amortisation requirements (Amort) and RW are also significant. The estimation results when house price growth is the dependent variable are consistent with these results. Our findings do not support that Basel III type countercyclical buffer (CCyB) has affected credit growth, and we suggest that the variable is mainly a control in our dataset. In that interpretation, it is interesting that the estimated coefficients of the other instruments are robust with respect to exclusion of CCyB from the empirical models. The main results are also robust to controls in the form of impulse indicator saturation (IIS), which we employed as a novel estimation method for macro panels.

Highlights

In this paper, we estimate the effects of macroprudential policies on credit growth and housing price changes
We analysed a quarterly panel dataset consisting of ten advanced open economies, seven European countries as well as Australia, New Zealand and Canada, where macroprudential policy measures have been used since the end of the last millennium
When the hypothesis of joint significance was tested, the results are convincingly significant for the battery of macroprudential policy instruments

Summary

Introduction

We estimate the effects of macroprudential policies on credit growth and housing price changes. The importance of credit and debt for large macroeconomic fluctuations has long been recognised. Irving Fisher’s theory of asset price booms and debt-deflation depressions remains an early milestone, and it is interesting to note that, during the first decades after the World War II, leading economists were analysing the increased risk of crisis if and when credit markets again became liberalised (see Anundsen et al (2014)). In the case of Norway, empirical econometric modelling results indicated clearly that both the house price boom, and the ensuing bust, contributed to GDP expansion and recession trough the private saving channel (cf Brodin and Nymoen (1992) and Eitrheim et al (2002))

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