Effectiveness of Macroprudential Policies on Credit Surge and Stop Episodes

Mehmet Ekinci, Turalay Kenc () and Ünay Tamgaç
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Turalay Kenc: The Inceif University

Open Economies Review, 2024, vol. 35, issue 5, No 7, 1085-1113

Abstract: Abstract When faced with capital flow and credit growth waves in recent years, policymakers have relied upon macroprudential regulation. This paper sheds light on a relatively less-analyzed policy issue: how macroprudential regulatory measures mitigate extreme credit growth episodes. We use a dynamic panel data approach to estimate the impact of MaPPs on credit growth volatility and the likelihood of credit growth boom and bust episodes. We find that MaPPs reduce credit growth volatility in both advanced economies (AEs) and emerging market economies (EMEs). In addition, MaPPs help to prevent credit surges in EMEs and stops in AEs. Our results show that there is a strong link between net capital flows and credit growth stop episodes. Net capital flow surges trigger a credit surge for EMEs. This suggests that policymakers should consider both MaPPs and capital flow management measures when designing policies to mitigate the risks associated with these phenomena.

Keywords: Macroprudential policy; Capital flows; Credit surges; Credit stops (search for similar items in EconPapers)
JEL-codes: E58 E61 F34 F41 G18 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11079-023-09744-3

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