EconPapers    
Economics at your fingertips  
 

Macroprudential Policy and the Probability of a Banking Crisis

Ryota Nakatani

MPRA Paper from University Library of Munich, Germany

Abstract: The ultimate purpose of macroprudential policy is to avoid financial instability, such as banking crises, which have a long-lasting and devastating effect on the economy. Although a growing number of studies have examined the effects of macroprudential policy on credit growth, few empirical studies have analyzed its effect on the probability of a banking crisis. Does macroprudential policy actually affect the probability of a banking crisis? Do other macroeconomic policies matter for the effectiveness of macroprudential policy? To answer these questions, this paper empirically investigates the effect of macroprudential policy on the probability of a banking crisis and its relationship with other macroeconomic policies. Specifically, using data on 65 countries from 2000 to 2016, we employ a probit model to analyze the effect of changes in the loan-to-value (LTV) ratio on crisis probability. Our results show that macroprudential policy is effective in changing the probability of a banking crisis via a credit channel and that its effectiveness depends on other macroeconomic policies. Changes in the LTV ratio are found to be effective in influencing the probability of a banking crisis in countries that have inflation targeting frameworks, floating exchange rate regimes, and/or no capital controls. Our results underscore the importance of policy coordination among different government bodies to design an appropriate macroprudential policy, especially in the current context of the Covid-19 crisis.

Keywords: macroprudential policy; loan-to-value (LTV) ratio; banking crisis; probit model; monetary policy; exchange rate regime; capital control (search for similar items in EconPapers)
JEL-codes: E52 E61 F33 F38 G01 G28 R31 R38 (search for similar items in EconPapers)
Date: 2020-06-15
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/101157/1/MPRA_paper_101157.pdf original version (application/pdf)

Related works:
Journal Article: Macroprudential policy and the probability of a banking crisis (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:101157

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2024-12-28
Handle: RePEc:pra:mprapa:101157