Macroprudential Policy and Bank Systemic Risk: Does Inflation Targeting Matter?

Mohamed Belkhir, Sami Ben Naceur, Bertrand Candelon, Woon Gyu Choi and Farah Mugrabi

No 2023/119, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates macroprudential policy effects on bank systemic risk and the role of inflation targeting in such effects. Using bank-level data for 45 countries comprising various monetary and exchange rate regimes, our regime-dependent dynamic panel regression results point to complementarities between monetary and macroprudential policies. We find that the tightening of most macroprudential tools—including DSTI and LTV limits, and capital requirements—reduces bank systemic risk further under inflation targeting. Our findings lend credence to the view that inflation targeting strengthens macroprudential policy roles in mitigating financial stability risks.

Keywords: Macroprudential Policies; Banks; Systemic Risk; Monetary Policy; Inflation Targeting; inflation targeting matter; role of inflation targeting; B data; IT country; emerging market economy; capital requirement; Macroprudential policy; Macroprudential policy instruments; Financial sector stability; Countercyclical capital buffers; Global (search for similar items in EconPapers)
Pages: 46
Date: 2023-06-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mon
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