Financial development and the effectiveness of macroprudential and capital flow management measures

Yusuf Soner Başkaya, Ilhyock Shim and Philip Turner

Journal of Banking & Finance, 2025, vol. 178, issue C

Abstract: Using quarterly data on macroprudential policy (MaPP) measures and capital flow management measures (CFMs) in 39 economies over 2000–2020, we analyse how domestic credit and cross-border capital flows respond to such measures. We distinguish price- and quantity-based MaPP measures and CFMs, and examine if the level of financial development matters in explaining policy effectiveness. Tightening MaPP measures significantly reduce household credit when the level of financial development is relatively low, and this is driven more by price-based MaPP measures. Also, price- and quantity-based CFMs slow down bank inflows with the former effective at relatively low levels of financial development and the latter at relatively high levels. Finally, we present evidence on leakages associated with quantity-based measures. Tightening quantity-based CFMs increases offshore bond issuance when the level of financial development is relatively low, while tightening quantity-based MaPP measures increase bank and bond inflows when financial development is relatively high.

Keywords: Bank lending; Capital flow management measures; Cross-border capital flows; Financial development; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: F34 G15 G28 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Financial development and the effectiveness of macroprudential and capital flow management measures (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:178:y:2025:i:c:s0378426625001244

DOI: 10.1016/j.jbankfin.2025.107504

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