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Are Macroprudential Policies Effective Tools to Reduce Credit Growth in Emerging Markets?

Fatma Pinar Erdem Kucukbicakci (), Etkin Ozen () and Ibrahim Unalmis ()
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Fatma Pinar Erdem Kucukbicakci: Central Bank of the Republic of Turkey
Etkin Ozen: World Bank
Ibrahim Unalmis: TED University

World Journal of Applied Economics, 2020, vol. 6, issue 1, 73-89

Abstract: Macroprudential policies (MPPs) were relatively less used around the world before the 2008 global financial crisis (GFC). In the aftermath of the GFC, they have become popular both in advanced and emerging market countries. Through time, the accumulation of new data across countries has led to a growing body of literature investigating the effectiveness of such policies. In this paper, using a data set of 30 developing and emerging market countries and panel VAR approach with GMM estimation, we contribute to this literature, first, by testing whether MPPs are effective in controlling domestic credit growth after a global liquidity shock. Second, we test whether MPPs are more effective when a combination of MPPs are used to control credit growth. Results indicate that MPPs are effective tools to limit domestic credit growth, especially during the expansion phase of the credit cycle. Second, the number of MPP tools does matter to manage the magnitude and duration of the domestic credit growth effectively. We argue that the insufficient number of MPP implementations are unable to prevent leakages in the system and reduce the effectiveness of MPPs under a global liquidity shock.

Keywords: Macroprudential policies; Credit growth; Global liquidity; Credit cycle; Panel VAR (search for similar items in EconPapers)
JEL-codes: E43 E58 G18 G28 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ana:journl:v:6:y:2020:i:1:p:73-89

DOI: 10.22440/wjae.6.1.5

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