Macroprudential regulations and systemic risk: Does the one-size-fits-all approach work?

Abstract

This study empirically investigates whether systemic risk varies among countries with different income levels in response to macroprudential policy instruments (MPIs). The results suggest a negative association between overall MPIs and systemic risk using a sample of 68 countries covering the period between 2000 and 2017. However, not all instruments show intended stability benefits, especially for low and lower-middle-income economies. A comparative analysis reveals that upper-middle-income and high-income countries do receive stability benefits from MPIs. However, low and lower-middle-income economies show unintended instability costs in connection with MPIs, suggesting that a one-size-fits-all approach to macroprudential regulations is not beneficial. Low and lower-middle-income countries should carefully ascertain the choice, implementation, and monitoring of macroprudential policies.