What Do We Know About the Effects of Macroprudential Policy?

Galati, Gabriele; Moessner, Richhild

doi:10.1111/ecca.12229

Cited by 166 publications

(101 citation statements)

References 164 publications

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“…This study is also related to a recent and growing literature that examined the link between macroprudential policies and financial stability. The discussion that follows does not intend to provide an exhaustive survey of the literature as this has been done elsewhere (see, for instance, the excellent surveys of the literature by Galati and Moessner, 2018;Cerutti et al, 2017;and, Carreras et al, 2018). Our intention then in this section is to cite some of the recent studies that were not included in these three important literature surveys.…”

Section: Literature Reviewmentioning

confidence: 99%

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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Section: Literature Reviewmentioning

confidence: 99%

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

Pontines¹

2020

SSRN Journal

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“…While the need for macroprudential policies is now largely accepted, their effectiveness is not yet well-understood (Galati and Moessner 2014 ), mainly due to the lack of an agreed modeling framework of the interaction between the fi nancial system and the macroeconomy (Galati and Moessner 2013 ). Therefore, effective macroprudential policy demands a multidimensional perspective.…”

Section: Some Issues In the Application Of Macroprudential Policesmentioning

confidence: 99%

Islamic Finance and Macroprudential Policy: The Case of Iranian Banking System

Hadian

2016

Macroprudential Regulation and Policy for the Islamic Financial Industry

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In response to the build-up of systemic risks and widespread fi nancial vulnerabilities, mainstream policymakers in many countries have adopted macroprudential regulations to mitigate systemic risks in the fi nancial sector as a whole. Islamic fi nance, on the other hand, has its own unique features promising stable fi nancial markets. The experience, however, has shown divergence between the ideal and practiced version of Islamic fi nance, where the majority of Islamic fi nancial contracts are highly similar to those of the conventional fi nancial system. In other words, the proportion of preferred contracts of Islamic fi nance, the PLS modes of fi nance, is small. It has been argued that this exposes the Islamic fi nancial system to systemic risks like the conventional system. Therefore, in the long-run, Islamic fi nancial authority should make effort to realize a genuine version of Islamic fi nance by promoting PLS and equity-based fi nance since it is inherently a self-stabilizing instrument of Islamic fi nance, which eliminates the sources of systemic risks in the fi nancial sector. In the short-run, nevertheless, the Islamic fi nancial system should be subjected to macroprudential regulations, but those instruments and tools that are primarily permissible in sharia, and then compatible with countries' circumstances, should be adopted. In the case of Iran, the analysis shows an urgent need for macroprudential regulations in Iranian banking system.

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“…As a policy area, macroprudential policy is one of the few clear winners of the crisis, garnering widespread support since the crisis and becoming an increasingly vital part of the policy toolkit in countries around the world. Whether it will be effective in strengthening the resilience of financial systems and preventing financial crises is still an open question (see Galati and Moessner, 2014;Cerutti, Claessens and Laeven, 2017;Cizel et al, 2016).…”

Section: Introductionmentioning

confidence: 99%