Macro-prudential policies to contain the effect of structural risks on financial downturns

Martin Hodula, Jan Janků and Lukáš Pfeifer

Journal of Policy Modeling, 2023, vol. 45, issue 6, 1204-1222

Abstract: We investigate the extent to which various structural risks exacerbate the materialization of credit risk and affect financial cycle downturns. We use a large database covering all sorts of cyclical and structural features of the financial sector and the real economy for a panel of 30 countries over the period 2006Q1–2019Q4. We show that elevated levels of structural risks may have an important role in explaining the severity of credit risk materialization during financial cycle contractions. Among these risks, private and public sector indebtedness, banking sector resilience and concentration of real estate exposures stand out. Moreover, we show that the elevated levels of some of the structural risks identified may be related to long-standing accommodative economic policy. Our evidence implies a stronger role for macroprudential policy, especially in countries with higher levels of structural risks.

Keywords: Credit risk; Event study; Financial cycle downturns; Panel regression; Structural risks (search for similar items in EconPapers)
JEL-codes: E32 G15 G21 G28 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:45:y:2023:i:6:p:1204-1222

DOI: 10.1016/j.jpolmod.2023.08.001

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