Reserve requirements as a macroprudential instrument – Empirical evidence from Brazil

Glocker, Christian; Towbin, Pascal

doi:10.1016/j.jmacro.2015.02.007

Cited by 51 publications

(35 citation statements)

References 40 publications

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“…Krznar and Morsink (2014) establish that recent rounds of MaP tightening in Canada have reduced mortgage credit growth and house price growth. Glocker and Towbin (2015) show that an increase in reserve requirements leads to a contraction in domestic credit, a depreciation of the exchange rate, a current account improvement, and an increase in prices. Lim et al (2011) show that for 49 countries reviewed, MaPs helped to reduce procyclicality, meaning a reduced sensitivity of credit conditions to GDP growth.…”

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confidence: 99%

Effective Macroprudential Policy: Cross‐Sector Substitution from Price and Quantity Measures

Cizel¹,

Frost²,

Houben

et al. 2019

J of Money Credit Banking

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Macroprudential policy is increasingly being implemented worldwide, and is mostly applied to banks. A key question is whether this prompts substitution toward nonbank credit. Using two different global data sets on macroprudential measures and different methodologies, including detrended series, panel estimations, and propensity score matching, we find evidence of such substitution. Substitution toward nonbank credit appears to be stronger when policy measures are binding and are implemented in economies with well‐developed nonbank credit markets. This substitution partially offsets the fall in bank credit, thus dampening the policies’ effect on total credit.

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confidence: 99%

Effective Macroprudential Policy: Cross‐Sector Substitution from Price and Quantity Measures

Cizel¹,

Frost²,

Houben

et al. 2019

J of Money Credit Banking

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“…We also find, in one of our robustness tests, that both shocks have effects on real consumption and real investment. Our baseline results 4 For similar arguments, see, for instance, Kim and Mehrotra (2018) and Glocker and Towbin (2015). 5 Under the Bank of Korea Act, which took effect in 2011, the country's central bank was also provided a mandate to pursue financial stability objectives.…”

Section: Introductionmentioning

confidence: 60%

The Real Effects of Loan-To-Value Limits: Empirical Evidence from Korea

Pontines¹

2020

SSRN Journal

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This study adds to a recent and growing literature that assesses the effects of macroprudential policy. We compare the effects of monetary policy and loan-to-value ratio shocks for Korea, an inflation targeting economy and an active user of loan-to-value limits. We identify shocks using sign-restricted structural VARs and rely on a recent approach within this method to conduct structural inference. This study finds that both monetary policy and loan-to-value ratio shocks have effects on different measures of credit, i.e., real bank credit, real total credit and real household credit. We also find that both shocks have non-negligible effects on real house prices, including effects on real output, real consumption and real investment. We do, however, find that loan-to-value ratio shocks have negligible effects on the price level. These findings indicate that for the period covered by this study, limits on loan-to-value achieved their financial stability objectives in Korea in terms of limiting credit and house price appreciation under an inflation targeting regime. Furthermore, it attained these objectives without posing any threat to its price stability objective. Overall, these findings suggest that limits on loan-tovalue have important aggregate consequences despite it being a sectoral, targeted policy instrument. AbstractThis study adds to a recent and growing literature that assesses the effects of macroprudential policy. We compare the effects of monetary policy and loan-to-value ratio shocks for Korea, an inflation targeting economy and an active user of loan-tovalue limits. We identify shocks using sign-restricted structural VARs and rely on a recent approach within this method to conduct structural inference. This study finds that both monetary policy and loan-to-value ratio shocks have effects on different measures of credit, i.e., real bank credit, real total credit and real household credit. We also find that both shocks have non-negligible effects on real house prices, including effects on real output, real consumption and real investment. We do, however, find that loan-to-value ratio shocks have negligible effects on the price level. These findings indicate that for the period covered by this study, limits on loan-to-value achieved their financial stability objectives in Korea in terms of limiting credit and house price appreciation under an inflation targeting regime. Furthermore, it attained these objectives without posing any threat to its price stability objective. Overall, these findings suggest that limits on loan-to-value have important aggregate consequences despite it being a sectoral, targeted policy instrument.JEL Codes: E31, E32, E52, E58, G28

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“…In reality, many central banks around the world have already abolished the reserve requirement since the introduction of deposit insurance by FDIC and Basel II-type regulation that emphasizes on capital rather than reserves (Di Giorgio 1999). Yet reserve requirement is still in place in many central banks that not only use it as a protection against deposit loss and bank run, but also proactively manipulate reserve requirement as an effective macroprudential policy instrument (Glocker and Towbin, 2015;Fungáčová, Nuutilainen and Weill, 2016). In the US, the reserve requirement is set at 10% for transaction accounts over $122.3 million, while for other countries the requirement ranges from none to over 40%.…”

Section: Proofmentioning

confidence: 99%

“Animal spirits” and bank’s lending behaviour, a disequilibrium approach

Chiarella

Guilmi

Zhi

2019

Studies in Nonlinear Dynamics &Amp; Econometrics

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The paper analyses from a disequilibrium perspective the role of banks’ “animal spirits” and collective behaviour in the creation of credit that, ultimately, determines the credit cycle. In particular, we propose a dynamic model to analyse how the transmission of waves of optimism and pessimism in the supply side of the credit market interacts with the business cycle. We adopt the Weidlich-Haag-Lux approach to model the opinion contagion of bankers. We test different assumptions on banks’ behaviour and find that opinion contagion and herding amongst banks play an important role in propagating the credit cycle and destabilizing the real economy. The boom phases trigger banks’ optimism that collectively lead the banks to lend excessively, thus reinforcing the credit bubble. Eventually the bubbles collapse due to an over-accumulation of debt, leading to a restrictive phase in the credit cycle.

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Reserve requirements as a macroprudential instrument – Empirical evidence from Brazil

Cited by 51 publications

References 40 publications

Effective Macroprudential Policy: Cross‐Sector Substitution from Price and Quantity Measures

Effective Macroprudential Policy: Cross‐Sector Substitution from Price and Quantity Measures

The Real Effects of Loan-To-Value Limits: Empirical Evidence from Korea

“Animal spirits” and bank’s lending behaviour, a disequilibrium approach

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