Macroprudential Policies and The Covid-19 Pandemic: Risks and Challenges For Emerging Markets

Edwards, Sebastián

doi:10.3386/w29441

Cited by 5 publications

(3 citation statements)

References 21 publications

(28 reference statements)

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“…From the policy perspective, our findings provide encouraging evidence that the measures which are primarily applied to address excessive credit expansion and strengthen the resilience of the financial system, such as changes in the availability of or eligibility for credit instruments as well as adjustments in the quantity and/or quality of capital held by financial institutions, are indeed effective in achieving this goal in EM economies. This may be especially relevant in the current post-pandemic phase when after temporary relaxation of macroprudential measures and introduction of abundant liquidity and financial support programmes (Edwards, 2021), the EM economies are facing strong aggregate demand pressures. This requires a careful sequencing of policy measures ensuring robust economic recovery with manageable financial risks.…”

Section: Discussionmentioning

confidence: 99%

Credit cycles and macroprudential policies in emerging market economies

Lazarević¹,

Kuzman²,

Nedeljković³

2022

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Research background: Excessive credit expansions have an important role in the generation and amplification of business cycles in emerging market (EM) economies. Macroprudential policies can be beneficial in restraining excessive credit growth and safeguarding financial stability. Despite recent theoretical advances in understanding of the benefits of macroprudential policies, empirical evidence on their effect on the credit cycle is still scarce. Purpose of the article: This paper studies the effectiveness of macroprudential measures in the sample of major EM economies focusing on the broad credit measure and using an empirical framework which aims to alleviate several concerns in the previous literature. We examine the effectiveness of four categories of measures which are granular enough to provide relevant policy perspectives, whilst mitigating data sparsity issues. By exploiting both time-series and cross-country variation in the tightness of macroprudential regulation in the construction of policy variables we also mitigate some of the common reverse causality concerns. Methods: We use panel data and employ several (fixed effect, bias corrected LSDV and dynamic interactive fixed effect) estimators to ensure that the results are not sensitive with respect to the estimation method while, together with our construction of the policy variables, alleviating other endogeneity concerns. Findings & value added: We uncover the heterogeneity in the effects of macroprudential measures on the credit cycle. While measures related to bank capital and credit activity are found to be effective in leaning-against the credit cycle, the measures targeting bank liquidity and FX exposures fail to have statistically significant effect. Our results provide the rationale for mixed evidence in the empirical literature studying the effectiveness of the broadly defined macroprudential measures. From the policy perspective, our findings provide evidence that the measures which address excessive credit expansion and strengthen the resilience of the financial system are effective in the EM economies.

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Section: Discussionmentioning

confidence: 99%

Credit cycles and macroprudential policies in emerging market economies

Lazarević¹,

Kuzman²,

Nedeljković³

2022

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“…Another problem with temporary deferrals is that they may lead to lower repayment discipline by borrowers, set expectations for banks that such deferrals might be "acceptable" for the supervisor in the future, and predispose future SOCB investors to expect such forbearance after privatization-such as in Mexico from the early 1990s (Gruben and McComb 1997). Correct incentives need to be built into the forbearance programs to achieve beneficial outcomes in the long term (Edwards 2021;Shi 2021;Cherry et al 2021). Proper risk provisioning at an early stage, as well as acting in a forwardlooking manner regarding the allocation of profits, remain paramount for maintaining bank resilience during the COVID-19 crisis, Fidesser et al (2021) argue.…”

Section: Structural Challenges Of Banking In Transition and Risks To ...mentioning

confidence: 99%

Late banking transitions: Comparing Uzbekistan to earlier reformers

Babasyan

Melecký

2023

World Development Perspectives

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Section: Structural Challenges Of Banking In Transition and Risks To ...mentioning

confidence: 99%

Late Banking Transitions: Comparing Uzbekistan to Earlier Reformers

Babasyan¹,

Gu²,

Melecký³

2022

Policy Research Working Papers

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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Macroprudential Policies and The Covid-19 Pandemic: Risks and Challenges For Emerging Markets

Cited by 5 publications

References 21 publications

Credit cycles and macroprudential policies in emerging market economies

Credit cycles and macroprudential policies in emerging market economies

Late banking transitions: Comparing Uzbekistan to earlier reformers

Late Banking Transitions: Comparing Uzbekistan to Earlier Reformers

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