EconPapers    
Economics at your fingertips  
 

The impact of macroprudential policies on capital flows in CESEE

Markus Eller (), Niko Hauzenberger, Florian Huber, Helene Schuberth and Lukas Vashold

Journal of International Money and Finance, 2021, vol. 119, issue C

Abstract: In line with recent policy discussions on the use of macroprudential policies (MPPs) to respond to cross-border risks arising from capital flows, this paper tries to quantify which impact MPPs had on capital flows in Central, Eastern and Southeastern Europe (CESEE). This region experienced a substantial boom-bust cycle in capital flows amid the global financial crisis and policymakers had been quite active in adopting MPPs already before that crisis. To study the dynamic responses of capital flows to a tightening in the macroprudential environment, we propose a novel regime-switching factor-augmented vector autoregressive (FAVAR) model and include an intensity-adjusted macroprudential policy index to identify MPP shocks. Our results suggest that tighter MPPs translate into negative dynamic reactions of domestic private sector credit growth and gross capital inflow volumes in a majority of the countries analyzed. Level and volatility responses of capital inflows are often correlated positively, suggesting that if MPPs were successful in reducing capital inflows, they would also contribute to lower capital flow volatility. We also provide evidence that the effects of MPP tightening are in most cases stronger in an environment characterized by low interest rates, suggesting that MPPs would be more effective if conventional monetary policy were facing constraints.

Keywords: Capital flows; Macroprudential policy; Global factors; Regime-switching FAVAR; CESEE (search for similar items in EconPapers)
JEL-codes: C38 E61 F44 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560621001467
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The impact of macroprudential policies on capital flows in CESEE (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:119:y:2021:i:c:s0261560621001467

DOI: 10.1016/j.jimonfin.2021.102495

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-09-15
Handle: RePEc:eee:jimfin:v:119:y:2021:i:c:s0261560621001467