How effective is macroprudential policy? Evidence from lending restriction measures in EU countries

Abstract

This 22I would like to thank Stijn Claessens, Miguel Segoviano, Philippe Wingender and seminar participants at the IMF's European Department, European Central Bank, Deutsche Bundesbank and Bank of Finland for helpful comments and suggestions. I would also like to thank the editor - Henry Pollakowski - and the anonymous referee for valuable suggestions that helped improve the paper. The usual disclaimer applies.paper assesses the effectiveness of lending restrictions measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit. We use data on 99 lending standard restrictions implemented in 28 EU countries over 1990–2018. The results suggest that lending restriction measures are generally effective in curbing house prices and credit. However, the impact is delayed and reaches its peak only after three years. In addition, the impact is asymmetric, with tightening measures having weaker association with target variables compared to loosening measures. The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions. The results have practical implications for macroprudential authorities.