Macroprudential Policy: What Instruments and How to Use Them? Lessons from Country Experiences

Lim, Cheng Hoon; Costa, Alejo; Columba, Francesco; Kongsamut, Piyabha; Otani, Akira; Saiyid, M.; Wezel, Torsten; Wu, Xun

doi:10.2139/ssrn.1956385

Cited by 136 publications

(102 citation statements)

References 11 publications

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“…Incessant efforts by theorists (e.g., Mendicino and Punzi, 2014;Farhi and Werning, 2016) and empiricists (e.g., Lim et al, 2011) in the past decade have enhanced our understanding of the subject. Macroprudential policy primarily targets the housing market (Galati et al, 2011;Akinci and Olmstead-Rumsey, 2017) with countering externalities in the credit creation process (Bianchi, 2010;Angelini et al, 2013) being its major underpinning.…”

Section: Macroprudential Policy In Hong Kongmentioning

confidence: 99%

“…Unlike studies that either captured the implementation of each policy instrument using a dummy variable (e.g., Cerutti et al, 2015;Tillmann, 2015;Akinci and Olmstead-Rumsey, 2017) or ignored the possible endogeneity among the intensities and propensities of different policy instruments (e.g., Lim et al, 2011), our MOP-VAR approach endogenizes the intensities of multiple policy instruments and allows such intensities to vary over time.…”

Section: Mop-var Specificationmentioning

confidence: 99%

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The effects of macroprudential policy on Hong Kong’s housing market: a multivariate ordered probit-augmented vector autoregressive approach

Chow

Fung

2019

Empir Econ

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This study evaluates the effects of macroprudential policy on Hong Kong's housing market using a multivariate ordered probit-augmented vector autoregressive model (MOP-VAR).The proposed MOP-VAR extends the conventional dummy policy variable approach by allowing explicit measurement of time-varying policy intensities that underlie policy rules, and thus facilitates analyses of bilateral relationship between house prices and multiple policy instruments when endogeneity exits among the instruments' intensities and prices.An impulse response analysis suggests that the dampening effect of macroprudential tightening is stronger and more instantaneous on transactions than on prices. The eventual outcome as indicated by conditional forecasts is dominated by a strong and prolonged own price response to house price shocks and other external developments that undermine the policy's effectiveness. Moreover, over the long haul, a combination of a stamp duty and stress test tends to be more effective than restricting the loan-to-value ratio in triggering a trend reversal in house prices, despite the government's preference for the latter. The out-

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Section: Macroprudential Policy In Hong Kongmentioning

confidence: 99%

Section: Mop-var Specificationmentioning

confidence: 99%

The effects of macroprudential policy on Hong Kong’s housing market: a multivariate ordered probit-augmented vector autoregressive approach

Chow

Fung

2019

Empir Econ

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“…Borrower-Based Macroprudential Measures and Credit Growth: How Biased is the Existing Literature? 5 capture the occurrence of macroprudential policy measures (including the borrower-based measures) using dummy-type indices (Lim et al, 2011;Kuttner and Shim, 2016;Cerutti et al, 2016;Akinci and Olmstead-Rumsey, 2018). Studies typically find that the application of macroprudential measures lower the real credit growth rate and slow-down house price growth.…”

Section: Introductionmentioning

confidence: 99%

Borrower-Based Macroprudential Measures and Credit Growth: How Biased is the Existing Literature?

Malovaná

Hodula

Gric

et al. 2022

Preprint

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The ever-so-increasing use of borrower-based measures such as loan-to-value, debt-to-income, and debt service-to-income limits has created a demand to better understand the transmission of the policy and its effectiveness. In this paper, we collect more than 700 estimates from 34 studies on the effect of borrower-based measures on bank loan provision. A birds-eye view of our dataset points to a significant fragmentation of the literature in terms of the estimated coefficients. On average, the introduction or tightening of borrower-based measures reduces annual credit growth by 1.6 pp. Using battery of empirical tests, we verify the presence of a strong publication bias, especially against positive and not statistically significant estimates. The bias-corrected coefficient is about half the size of the uncorrected mean of the collected estimates, but remains safely negative. Further, we explore the context in which researchers obtain such estimates and we find that differences in the literature are best explained by model specification, estimation method, and the underlying data characteristics.

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“…2 The proposed tools range from adaptations of standard microprudential measures (such as capital surcharges that are countercyclical or systemic risk-based) to taxes and restrictions on intermediaries' assets and liabilities (FSB, 2011a andIMF, 2011a;Shin, 2011). Many countries have announced the adoption of macroprudential policies, and some have already implemented versions of such policies with early evidence as to their effectiveness (see Crowe et al, 2011;IMF, 2011b;Lim et al, 2011).…”

Section: Introductionmentioning

confidence: 99%

“…See DeNicolò et al (2012) andRepullo and Suarez (2012) for model-based estimates of transition and steadystate impact of higher capital requirements.Flannery (2009) andFrench et al (2010) argue that the tax shield costs of higher equity can also be offset using convertible instruments such as contingent capital. 18 See, for example,Crowe et al (2011), Lim et al (2011), and Dell'Ariccia et al (2012 for evaluations of the effectiveness of some macroprudential policy tools.©International Monetary Fund. Not for Redistribution…”

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confidence: 99%

Externalities and Macroprudential Policy

Nicoló¹,

Favara²,

Ratnovski³

2012

Staff Discussion Notes

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Macroprudential Policy: What Instruments and How to Use Them? Lessons from Country Experiences

Cited by 136 publications

References 11 publications

The effects of macroprudential policy on Hong Kong’s housing market: a multivariate ordered probit-augmented vector autoregressive approach

The effects of macroprudential policy on Hong Kong’s housing market: a multivariate ordered probit-augmented vector autoregressive approach

Borrower-Based Macroprudential Measures and Credit Growth: How Biased is the Existing Literature?

Externalities and Macroprudential Policy

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