Impact Of Macroprudential Policies Research Articles

MACROPRUDENTIAL POLICIES AND BANK RISK: DOES LANGUAGE MATTER?

The role of macroprudential policies (MPPs) in influencing bank behavior has expanded significantly in recent years. However, the evidence regarding the impact of MPPs in influencing bank behavior across countries with different Future time reference (FTR) of languages has not been adequately examined. To inform this debate, utilizing bank-level data during 2010–2019, we examine how MPPs affect bank return and risk across countries with varying FTR of languages. The findings show that using MPPs lowers risk in countries with strong FTR. This is manifest in baseline regressions as well as in robustness tests that incorporate additional dimensions of a country’s economic and institutional environment. Over and above, the results show that although borrower- and lender-focused macroprudential measures are equally effective, their efficacy differs, with the former set of instruments being more useful in Emerging Market and Developing Economies (EMDEs). In contrast, the latter holds greater traction in advanced economies.

Impact of macroprudential policy on economic growth in Indonesia: a growth-at-risk approach

Impact of macroprudential policy on economic growth in Indonesia: a growth-at-risk approach

Taming the housing roller coaster: The impact of macroprudential policy on the house price cycle

Employing an agent-based model of the Spanish housing market, this paper explores the main drivers behind the large amplitude of the Spanish house price cycle—as compared to most other European countries—, as well as the scope for macroprudential policy to reduce this amplitude. First, we exploit the availability of a previous calibration to the UK, characterised by a smaller house price cycle, to show the prominent role played by the distributions of various mortgage risk metrics: loan-to-value, loan-to-income and debt-service-to-income ratios. Second, we use the model to calibrate both a hard loan-to-value and a soft loan-to-income limit to smooth the Spanish house price cycle and match the amplitude of the UK equivalent. Finally, we characterise the effects of these calibrated policies over the different phases of the cycle, finding both instruments to reduce credit and price growth during the expansionary phase as well as to reduce their decline during the contractionary phase. Moreover, both instruments lead to a compositional shift in lending: the loan-to-value policy from first-time buyers to buy-to-let investors and the loan-to-income policy from both first-time buyers and home movers to buy-to-let investors.

The impact of macroprudential policy and political institutions on bank credit risk in Ethiopia: A dynamic ordinary least squares analysis

The impact of macroprudential policy and political institutions on bank credit risk in Ethiopia: A dynamic ordinary least squares analysis

The impact of macroprudential policy on inequality and implications for inclusive financial stability

A loan-to-value ratio (LTV) ceiling is a macroprudential policy that limits households' mortgage borrowing to a fraction of the value of a house. Our empirical evidence suggests that LTV ceilings have a significant impact on widening household wealth inequality. Using South Korean survey data from 9,844 households over the 2017–2019 period and a regression discontinuity design (RDD), we estimate that the tightening of the LTV ceiling by 10 percentage points reduced the average log net worth of the poorest quintile of households by 1.3 (a -73% change in net worth) over two years relative to the control households. Meanwhile, the measure did not affect the net worth of wealthier households.

The impact of macroprudential policies on the transmission of shocks across financially integrated countries

AbstractWe study the implications of macroprudential policies across countries on the transmission of shocks when international investment activities are allowed. In a two‐country dynamic stochastic general equilibrium (DSGE) model in which international investors are borrowing constrained and pledge international assets, we introduce a time‐varying loan‐to‐value (LTV) ratio that adjusts to the variation of three different financial vulnerability indicators. We examine the effect of these policies on negative productivity and borrowing capacity shocks. Although time‐varying LTV ratios reduce the international propagation of the productivity shock, their response to the shock depends on the financial vulnerability indicator with which the LTV ratio changes. With a productivity shock, the adjustment of the LTV ratio to the deviation of credit or asset price helps to reverse the negative impact of the shock. With a financial shock, LTV ratios varying with a deviation of credit‐to‐GDP ratio or aggregate credit can mitigate the impact of a negative financial shock. Adjustment of the LTV ratios reduces the fluctuation of international investors' balance sheets, investment, and productivity. We find that countries improve their welfare when time‐varying LTV ratios are in place. The magnitude of the welfare gain differs with both the financial vulnerability indicator and the shock.

Macroprudential Policy, Financial Crisis, and Macroeconomic Policy (Case Study In 5 Asean Countries)

This study will examine two aspects, the first is the impact of macroprudential policy on the potential for a financial crisis, then the link between macroprudential policy and macroeconomic policy (monetary policy, exchange rate regime and capital control). This research will involve 5 (five) ASEAN countries as samples, namely Indonesia, Malaysia, Thailand, Vietnam and Singapore. The data used are annual data starting from 2004 to 2020. The variable used in this study is the loan-to-value (LTV) variable as a variable that describes macroprudential policy, then GDP growth rate, income per capita, inflation rate (consumer price). index), and changes in monetary policy (real interest rate). The analytical tool used in this research is the probit model. The results showed that macroprudential policies had an effect on controlling the financial crisis. Macroprudential policy is considered effective in avoiding a banking crisis by suppressing credit growth. In other words, it is found that a tightening of the LTV ratio is significantly associated with a lower probability of a banking crisis Keywords: macroprudential policy, monetary policy, exchange rate regime and capital control. DOI: 10.7176/JESD/13-7-08 Publication date: April 30 th 2022

The impact of macroprudential policy on financial stability in selected EU countries

The impact of macroprudential policy on financial stability in selected EU countries

The Impact of Macroprudential Policies on Firm Value

The Impact of Macroprudential Policies on Firm Value

The impact of macroprudential policies on bank risk under economic uncertainty: Evidence from emerging Asian economies

This paper examines the impact of macroprudential policies on the nexus between economic uncertainty and bank risk in emerging Asian economies. We construct our index of economic uncertainty by applying the Generalized Autoregressive Conditional Heteroskedasticity (GARCH)-in-mean model to a series of important macroeconomic variables, and borrow macroprudential policy indices from Cerutti et al. (2017) and Alam et al. (2019). Using bank-level panel data from approximately 600 commercial banks in 11 emerging Asian economies during the period 2000–2016, we find consistent evidence that bank risk increases with economic uncertainty, while macroprudential measures play an ameliorative role in uncertainty-induced bank risk. Our baseline findings are largely driven by macroprudential measures that aim to dampen the credit cycle more than those that target increasing the resilience of the banking sector. Our further analyses of the heterogeneous impacts of macroprudential measures by specific type on the risk of banks show that liquidity-based instruments, reserve requirements and currency instruments play a more conspicuous role in the economic uncertainty‒bank risk nexus than capital-based and asset-side macroprudential instruments.

The impact of macroprudential policies on capital flows in CESEE

In line with recent policy discussions on the use of macroprudential policies (MPPs) to respond to cross-border risks arising from capital flows, this paper tries to quantify which impact MPPs had on capital flows in Central, Eastern and Southeastern Europe (CESEE). This region experienced a substantial boom-bust cycle in capital flows amid the global financial crisis and policymakers had been quite active in adopting MPPs already before that crisis. To study the dynamic responses of capital flows to a tightening in the macroprudential environment, we propose a novel regime-switching factor-augmented vector autoregressive (FAVAR) model and include an intensity-adjusted macroprudential policy index to identify MPP shocks. Our results suggest that tighter MPPs translate into negative dynamic reactions of domestic private sector credit growth and gross capital inflow volumes in a majority of the countries analyzed. Level and volatility responses of capital inflows are often correlated positively, suggesting that if MPPs were successful in reducing capital inflows, they would also contribute to lower capital flow volatility. We also provide evidence that the effects of MPP tightening are in most cases stronger in an environment characterized by low interest rates, suggesting that MPPs would be more effective if conventional monetary policy were facing constraints.

Macroprudential Policy and Credit Risk in Dual Banking System

Issues related to financial stability are a very complex problem, especially the global crisis impact in 2008. Based on these conditions, the Basel Committee on Banking Supervision introduced a macroprudential policy to mitigate financial system risk systemically. The study aims to analyze the impact of macroprudential policy on the banks’ risk exposure by adopting credit risk as a risk proxy. By adopting a panel dynamic approach, credit risk is used to be a dependent variable while independent variables consist of the reserve requirement, capital buffer, and a net open position in either conventional and Islamic banks. The observation period starts from 2014 to 2019 with quarterly data, and it involves 22 banks in Indonesia. The study found that macroprudential policy has a long-run relationship to Islamic banks' credit risk but not to conventional banks. The result from Variance Decompositions (VDs) and Impulse Response Factors (IRFs) also showed that each independent variables have an impact to credit risk value in many different directions. According to that, this study suggests that Indonesian financial authority has to pay attention to the different effectiveness and impact of its macroprudential policy, which has to consider the specific characteristics of either conventional or Islamic banks..

The Impact of Macroprudential Policies on Capital Flows in Cesee

In line with the recent policy discussion on the use of macroprudential measures to respond to cross-border risks arising from capital flows, this paper tries to quantify to what extent macroprudential policies (MPPs) have been able to stabilize capital flows in Central, Eastern and Southeastern Europe (CESEE) – a region that experienced a substantial boom-bust cycle in capital flows amid the global financial crisis and where policymakers had been quite active in adopting MPPs already before that crisis. To study the dynamic responses of capital flows to MPP shocks, we propose a novel regime-switching factor-augmented vector autoregressive (FAVAR) model. It allows to capture potential structural breaks in the policy regime and to control – besides domestic macroeconomic quantities – for the impact of global factors such as the global financial cycle. Feeding into this model a novel intensity-adjusted macroprudential policy index, we find that tighter MPPs may be effective in containing domestic private sector credit growth and the volumes of gross capital inflows in a majority of the countries analyzed. However, they do not seem to generally shield CESEE countries from capital flow volatility.

The Impact of Macroprudential Policies on the Vulnerability of the Banking System: Dynamic Panel Model

The Impact of Macroprudential Policies on the Vulnerability of the Banking System: Dynamic Panel Model

Testing the characteristics of macroprudential policies’ differential impact on foreign and domestic banks’ lending in Croatia

In the aftermath of the 2008 financial crisis, macroprudential measures were labelled as policymakers’ best response to systemic risk and macro-financial imbalances, with their effectiveness still largely unknown due to limited use of such measures. The purpose of this paper is to clarify the potentials and limitations of these measures by evaluating both the immediate and the overall impact of macroprudential policies on banks’ lending to the non-financial private sector in Croatia. The findings reveal the divergent impact of macroprudential measures on banks’ lending with regards to their direction, i.e. tightening or loosening. Policy makers should bear this in mind when opting for a tightening of their policy stance as the reversal of that action may not match the initial impact of its introduction. Additionally, from a policymaker perspective, this paper provides potential evidence of cross-border policy spillovers, which should be taken into account in order to conduct an effective macroprudential policy.

The impact of macroprudential policies in Latin America: An empirical analysis using credit registry data

Abstract This paper summarises the results of a joint research project by five central banks in Latin America countries (Argentina, Brazil, Colombia, Mexico and Peru) to evaluate the effectiveness of macroprudential tools and their interaction with monetary policy. Using meta-analysis techniques, we summarise the results of a common empirical framework based on confidential bank-loan data. The main conclusions are that (i) macroprudential policies have been quite effective in stabilising credit cycles. The propagation of the effects to credit growth is more rapid for policies aimed at curbing the cycle than for policies aimed at fostering resilience; and (ii) macroprudential tools have a greater effect on credit growth when reinforced by the use of monetary policy.

HOW TO DEVELOP MODERN NATIONAL SECURITY STRATEGY USING MACROPUDENTIAL POLICY

The purpose of the article is to explain the impact of macro-prudential policy on the state of macroeconomic security on the example of the Polish economy. Macroprudential policy is important in the system of ensuring the economic security of the country and is a relatively new direction of monetary authorities. Quantitative macro-prudential policy can be characterized by the values of key macroprudential indicators of the financial sphere – an extensive list of capital ratios of financial institutions, values of macroprudential „buffers” and others. The national economic security of the country is related to the socioeconomic stability of society and the positive dynamics of the economy. Therefore, we used macroeconomic equilibrium indicator to quantify the level of economic security. The article is devoted to the search, assessment and analysis of the relationship between these two phenomena - macroprudential policy and the security of the national economy.

International Evidence on the Impact of Macroprudential Policies on Bank Risk Taking and Systemic Risk

In this paper, we examine the impact of adopting macroprudential policies on bank risk taking and systemic risk. Using a difference-in-differences (DiD) design and a sample of 3,342 banks from 77 countries over the period 1997-2016, we find that macroprudential policy instruments mitigate bank risk taking and lower systemic risk. The mitigation depends on the policy target. We find borrower-targeted policies are effective, while policies targeting financial institutions’ assets or liabilities are not effective. We find the impact of borrower-targeted macroprudential policies on systemic risk is stronger in countries with more closed economies and those with tighter restrictions on bank activities. We find some evidence of a reduction in the effectiveness of policies adopted after the global financial crisis (GFC). Our results are robust to a battery of tests.

Macroprudential policy and tools in a dual banking system: Insights from the literature

The recent global financial meltdown highlights the need to promote financial stability through better regulation of financial institutions. The contentious debate strongly emphasizes, in particular, macroprudential tools, their implementation, and their effectiveness. This paper provides a critical review of theoretical and empirical research on the literature on Islamic finance that investigates macroprudential policy and its impact—specifically, the theoretical and empirical literature on the impact of macroprudential policy as it relates to financial stability and risk-taking in the Islamic and conventional financial systems. The findings suggest that only limited empirical research and analytical tools are available on macroprudential policy in the Islamic financial system because it is still in its infancy and far from able to create an analytical framework. Theoretical studies of macroprudential policy in Islamic finance have mixed results, and empirical research on it is not conclusive.

The Micro Impact of Macroprudential Policies:

Combining balance sheet data on 900,000 firms from 48 countries with information on the adoption of macroprudential policies during 2003-2011, we find that these policies are associated with lower credit growth. These effects are especially significant for micro, small and medium enterprises (MSMEs) and young firms that, according to the literature, are more financially constrained and bank dependent. Among MSMEs and young firms, those with weaker balance sheets exhibit lower credit growth in conjunction with the adoption of macroprudential policies, suggesting that these policies can enhance financial stability. Finally, our results show that macroprudential policies have real effects, as they are associated with lower investment and sales growth.