Designing credit-spread driven macroprudential rules

Pauline Gandré and Margarita Rubio

Journal of Financial Stability, 2025, vol. 80, issue C

Abstract: Macroprudential policy is traditionally characterized by countercyclical rules that respond to credit variables. In this paper, we augment these rules with additional indicators, including the credit spread. First, we empirically assess the relevance of the credit spread by showing its correlation with credit booms. Then, we incorporate this variable into a Dynamic Stochastic General Equilibrium (DSGE) model with financial frictions. Using the model, we evaluate the extent to which macroprudential measures that also respond to credit spreads can improve welfare, focusing on both a capital requirement ratio (CRR) rule and a loan-to-value ratio (LTV) rule. We find that credit spreads are particularly useful for credit supply-based measures, while borrower-based measures benefit more from an additional response to house prices. Overall, the augmented rules enhance welfare by reducing output volatility, although this comes at the cost of increased inflation volatility. Finally, we show that the welfare gains from responding to credit spreads are robust to the monetary policy stance in the case of the CRR, while for the LTV rule, they depend on the degree of monetary policy responsiveness to inflation.

Keywords: Credit spreads; Financial stability; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: E32 E44 E58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:80:y:2025:i:c:s1572308925000671

DOI: 10.1016/j.jfs.2025.101438

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