Saturday , January 25 2020
Home / Bank of International Settlement / Examining macroprudential policy and its macroeconomic effects – some new evidence

Examining macroprudential policy and its macroeconomic effects – some new evidence

Summary:
BIS Working Papers  |  No 825  |  11 December 2019 by  Soyoung Kim and Aaron Mehrotra PDF full text (2,436kb)  |  37 pages Focus Recent years have seen an increasing use of macroprudential policy to mitigate systemic risk. In addition to the effects on financial stability, theoretical models suggest various channels through which macroprudential policy could have broader macroeconomic effects on economic activity, consumption and investment. But empirical evidence on such macroeconomic effects remains sparse, in particular in a framework that would incorporate both monetary and

Topics:
International Settlement considers the following as important:

This could be interesting, too:

International Settlement writes Bad bank resolutions and bank lending

Bank of Japan writes Minutes of the Monetary Policy Meeting on December 18 and 19, 2019

International Settlement writes Impending arrival – a sequel to the survey on central bank digital currency

FRED Blog writes Do government dollars drive recovery? : The conventional wisdom and data behind government spending during recessions

BIS Working Papers  |  No 825  | 
11 December 2019
PDF full text
 (2,436kb)
 |  37 pages

Focus

Recent years have seen an increasing use of macroprudential policy to mitigate systemic risk. In addition to the effects on financial stability, theoretical models suggest various channels through which macroprudential policy could have broader macroeconomic effects on economic activity, consumption and investment. But empirical evidence on such macroeconomic effects remains sparse, in particular in a framework that would incorporate both monetary and macroprudential policy.

Contribution

We provide empirical evidence about the broader macroeconomic effects of macroprudential policy and the underlying transmission mechanism, as well as about the response of macroprudential policy to credit shocks. We also compare these with monetary policy. As the empirical methodology, the paper uses structural panel vector autoregressions and a dataset covering 32 advanced and emerging economies.

Findings

We find that macroprudential policy shocks have effects on real GDP, the price level and credit that are very similar to those of monetary policy shocks, but the detailed transmission of the two policies is different. Whereas macroprudential policy shocks mostly affect residential investment and household credit, monetary policy shocks have more widespread effects on the economy. We also find that positive credit shocks are generally met with tighter macroprudential policy, and macroprudential and monetary policy respond to credit shocks in a complementary way.


Abstract

In this paper, we provide empirical evidence about the broader macroeconomic effects of macroprudential policies and the underlying transmission mechanism, as well as the response of macroprudential policy to financial risks. To this end, we use structural panel vector autoregressions and a dataset covering 32 advanced and emerging economies. We show that macroprudential policy shocks have effects on real GDP, the price level and credit that are very similar to those of monetary policy shocks, but the detailed transmission of the two policies is different. Whereas macroprudential policy shocks mostly affect residential investment and household credit, monetary policy shocks have more widespread effects on the economy. Moreover, while positive credit shocks are generally met with tighter macroprudential policy, macro-financial country characteristics such as the exchange rate regime and the level of financial development affect the policy response.

JEL codes: E58, E61, G28

Keywords: macroprudential policy, monetary policy, credit, macroeconomic effect, macroprudential policy response

International Settlement
The Bank for International Settlements (BIS) is an international company limited by shares owned by central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

Leave a Reply

Your email address will not be published. Required fields are marked *