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Macroprudential Policies, Economic Growth, and Banking Crises

Mohamed Belkhir, Sami Ben Naceur, Bertrand Candelon () and Jean-Charles Wijnandts

No 2020/065, IMF Working Papers from International Monetary Fund

Abstract: Using a sample that covers more than 100 countries over the 2000-2017 period, we assess the impact of macroprudential policies on financial stability. In particular, we examine whether the activation of macroprudential policies is conducive to a lower incidence of systemic banking crises. Our empirical setup is designed to account for the potential direct and indirect effects that macroprudential policies can have on banking crises. We find that while macro-prudential policies exert a direct stabilizing effect, they also have an indirect destabilizing effect, which works through the depressing of economic growth. A Generalized Impulse Response Function analysis of a dynamic system composed of the probability of a banking crisis and economic growth reveals, however, that macroprudential policies have a positive net effect on financial stability (lower likelihood of systemic banking crises).

Keywords: WP; policy; policy tightening; Macroprudential Policies; Banking crises; Economic Growth; prudential policy; macroprudential policy; crisis probability; macropru-dential policy; crisis index; tools lead; countercyclical policy tool; banking crisis database; policy instrument; policy tool; macropudential policy; Macroprudential policy; Systemic crises; Emerging and frontier financial markets; Global; aggregate mpi (search for similar items in EconPapers)
Pages: 54
Date: 2020-05-22
New Economics Papers: this item is included in nep-fdg and nep-mac
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Handle: RePEc:imf:imfwpa:2020/065