Macroprudential Transparency and Price Stability in Emerging and Developing Countries

Emna Trabelsi

doi:10.2478/jcbtp-2022-0005

Abstract

Abstract One of the focuses of recent literature has been the macroeconomic effects of macroprudential policy instruments. The innovation of this paper is that it studies the effects of transparent macro-prudential policies on price stability. The results presented herein provide the first empirical evidence that macroprudential transparency can aid to achieve stable inflation in emerging and developing countries. The effect is necessarily transmitted through reduced occurrence of banking crises. We also record a particular advantage of macroprudential transparency for non-inflation targeting countries. Overall, the results are robust to the use of two proxies of price stability.

Highlights

Introduction and review of literaturePrice stability has been a long-standing topic of many research papers for its contribution to monetary policy effectiveness
Boar, Gambacorta, Lombardo andda Silva (2017) document less volatility in GDP growth for countries that use macroprudential policies, while Bergant, Grigoli, Hansen & Sandri (2020) find that macroprudential regulation alleviate the effects of global financial shocks on economic growth of emerging markets and improves macroeconomic stability
With a dynamic stochastic equilibrium model, Tayler and Zilberman (2014) argue that countercyclical bank capital regulation is more effective than monetary policy in promoting price and overall macroeconomic stability, while Glocker and Towbin (2015) find that a tightening increase in reserve requirements leads to an increase in the price level in Brazil

Summary

Introduction

Introduction and review of literaturePrice stability has been a long-standing topic of many research papers for its contribution to monetary policy effectiveness. Policymakers believe that macroprudential in addition to monetary policy instruments may basically restrain fiscal imbalances (see Borio and Shim, 2007; Borio and Drehmann, 2009). Empirical works such as Claessens, Ghosh, Swati and Mihet (2013), Cerutti, Claessens & Laeven (2017) and Akinci and Olmstead-Rumsey (2018) scrutinize the effectiveness and efficacy of macroprudential instruments in limiting and mitigating excessive credit growth, especially in emerging countries. The effects of variations in loan-to-value ratios on inflation are negligible according to Richter, Schularick & Shim (2019)

Objectives

Results

Conclusion