Finance, growth and (macro)prudential policy: European evidence

Martin Hodula and Ngoc Anh Ngo

Empirica, 2022, vol. 49, issue 2, No 11, 537-571

Abstract: Abstract This paper examines the interactions between financial development, economic growth and (macro)prudential policy on a sample of 12 euro area countries. Our main takeaway is that active (macro)prudential policy supports the positive finance-growth nexus instead of disrupting it. These benefits are found to be more likely to materialize during tightening of (macro)prudential policy measures and not during easing. This result is conditional on the ability of (macro)prudential policy to curb excess credit growth and mitigate systemic risk, which would otherwise disrupt the market. Moreover, we assert that when analysing the effects of (macro)prudential policy, it is important to account for the direction of (macro)prudential measures, not just for the frequency at which they are implemented.

Keywords: Development; Finance; Growth; Macroprudential policy; Panel analysis (search for similar items in EconPapers)
JEL-codes: G10 G28 O16 O40 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Working Paper: Finance, Growth and (Macro)Prudential Policy: European Evidence (2020)
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DOI: 10.1007/s10663-022-09537-w

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