Macro-prudential policy and systemic risk of real estate firms: Evidence from China

Abstract

Using data of listed real estate firms (REFs) in China, we examine how macro-prudential policy affects their systemic risk. Employing a two-dimensional measure of systemic risk contribution and vulnerability, we find that macro-prudential policy reduces both dimensions of systemic risk. Deleveraging and lowering risk interconnectedness are two plausible channels. Asset-based policy instruments, including loan-to-value limits, are more effective than capital- and liquidity-based instruments. Moreover, rational use of macro-prudential tools helps stablize REFs’ operating performance by reducing their systemic risk. Our findings highlight the critical role of macro-prudential policy in balancing risk prevention and economic growth.