Effects of Macroprudential Policy

Abstract

This paper builds a novel database on the effects of macroprudential policy drawing from 58 empirical studies, comprising over 6,000 results on a wide range of instruments and outcome variables. It encompasses information on statistical significance, standardized magnitudes, and other characteristics of the estimates. Using meta-analysis techniques, the paper estimates average effects to find i) statistically significant effects on credit, but with considerable heterogeneity across instruments; ii) weaker and more imprecise effects on house prices; iii) quantitatively stronger effects in emerging markets and among studies using micro-level data; and iii) statistically significant evidence of leakages and spillovers. Other findings include relatively stronger impacts for tightening than loosening actions and negative effects on economic activity in the near term.

The contribution of macroprudential policies to banks' resilience: Lessons from the systemic crises and the COVID‐19 pandemic shock

“…This also supports the findings of Ampudia et al (2021) and Beneditksdottir et al (2021) and is consistent with the theory of Araujo et al (2020) and Nakatani (2020). Conversely, tightening such policies during the pandemic could have increased banks' risk, thus supporting the regulatory arbitrage theory presented by Meuleman and Vennet (2020).…”

“…These results validate the pandemic agenda adopted by policymakers and central banks, leading us to conclude that countries that relaxed capital-aimed policies during the pandemic helped banks mitigate the adverse impact of this event, thereby reducing their individual risk by allowing them to dive into the previously built buffers to support losses and maintain credit flow in the economy. This also supports the findings of Ampudia et al (2021) and Beneditksdottir et al (2021) and is consistent with the theory of Araujo et al (2020) and Nakatani (2020). Conversely, tightening such policies during the pandemic could have increased banks' risk, thus supporting the regulatory arbitrage theory presented by Meuleman and Vennet (2020).…”

“…Hence, it is expected that banks in countries with loosened capital‐aimed macroprudential policies will cope better with the COVID‐19 crisis, as these policies are expected to increase banks' resilience (Ampudia et al, 2021) by building a monetary buffer that banks can use to absorb losses, avoid excessive deleveraging, and support lending during an economic crisis. In other words, by loosening previously developed capital buffers, banks can continue to allow credit to flow into the economy, thereby avoiding the worst‐case scenario (Araujo et al, 2020; Nakatani, 2020).…”

“…According to Sanchez and Rohn (2016), Richter et al (2019), Belkhir et al (2022), and Ampudia et al (2021), implementation or tightening of macroprudential policies hampers economic growth (i.e., the so‐called cost of macroprudential policies). Therefore, the inverse may also apply, that is, loosening macroprudential policies, specifically capital‐oriented strategies, will allow credit to flow back into the real economy (Araujo et al, 2020; Nakatani, 2020), thus undermining the economic consequences of the COVID‐19 crisis, stimulating economic growth and reducing banks' risk.…”

“…Therefore, the inverse may also apply, that is, loosening macroprudential policies, specifically capital-oriented strategies, will allow credit to flow back into the real economy (Araujo et al, 2020;Nakatani, 2020), thus undermining the economic consequences of the COVID-19 crisis, stimulating economic growth and reducing banks' risk.…”