Credit Growth and the Effectiveness of Reserve Requirements and Other Macroprudential Instruments in Latin America

International Monetary Fund

No 2012/142, IMF Working Papers from International Monetary Fund

Abstract: Over the past decade policy makers in Latin America have adopted a number of macroprudential instruments to manage the procyclicality of bank credit dynamics to the private sector and contain systemic risk. Reserve requirements, in particular, have been actively employed. Despite their widespread use, little is known about their effectiveness and how they interact with monetary policy. In this paper, we examine the role of reserve requirements and other macroprudential instruments and report new cross-country evidence on how they influence real private bank credit growth. Our results show that these instruments have a moderate and transitory effect and play a complementary role to monetary policy.

Keywords: WP; RR; interest rate; central bank; Reserve requirements; countercyclical policy; credit; monetary transmission mechanism; interest rate spreads; RR shock; market power; credit growth; economic activity; marginal RR; prudential instrument; foreign exchange; RR policy; RRS need; private bank; financial crisis; RR measure; Macroprudential policy instruments; Central bank policy rate; Bank credit; Global (search for similar items in EconPapers)
Pages: 29
Date: 2012-06-01
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Citations: View citations in EconPapers (91)

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