The Interaction Between Macroprudential Policy and Financial Stability

Zoe Venter ()

No 2020/0123, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: In this paper, an index of domestic macroprudential policy tools is constructed and the effectiveness of these tools in controlling credit growth is studied using a dynamic panel data model for the period between 2000 and 2017. The empirical analysis includes two panels namely an EU panel of 27 countries and a Latin American panel of 7 countries, and the paper also looks at a case study of Chile, Colombia, Japan, Portugal and the UK. Our main results find that the cumulative index of macroprudential policy tools does not have a statistically significant impact on credit growth when considering a panel of 27 EU countries. When considering the case of Japan, a tighter capital conservation buffer leads to a decrease in the credit supply. When looking at a panel of 7 Latin American countries, our main results show that a tightening of the capital conservation buffer results in an increase in the credit supply. A tightening of the loan-to-value ratio results in a decrease in the credit supply in the panel of 7 Latin American countries. Lastly, a tightening in the overall macroprudential policy tool stance results in a decrease in credit supply in Japan and an increase in credit supply in Portugal.

Keywords: Macroprudential Policy; Credit Booms; Capital Flows; Financial Stability; Systematic Risk; EU; Latin America (search for similar items in EconPapers)
JEL-codes: E58 F55 G01 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp01232020

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