Effectiveness of Macroprudential Policies on Credit Surge and Stop Episodes

When faced with capital flow and credit growth waves in recent years, policymakers have relied upon macroprudential regulation. This paper sheds light on a relatively less-analyzed policy issue: how macroprudential regulatory measures mitigate extreme credit growth episodes. We use a dynamic panel d...

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Bibliographic Details
Published in:Open economies review 2024-11, Vol.35 (5), p.1085-1113
Main Authors: Ekinci, Mehmet Fatih, Kenc, Turalay, Tamgac Tezcan, Unay
Format: Article
Language:English
Subjects:
Bias
Capital movement
Credit
Credit policy
Development Economics
Economic crisis
Economic Policy
Economics
Economics and Finance
Emerging markets
European Integration
Foreign investment
International Economics
International finance
Macroeconomics/Monetary Economics//Financial Economics
Market economies
Monetary policy
Panel data
Policy making
Regulation
Research Article
Volatility
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Summary:When faced with capital flow and credit growth waves in recent years, policymakers have relied upon macroprudential regulation. This paper sheds light on a relatively less-analyzed policy issue: how macroprudential regulatory measures mitigate extreme credit growth episodes. We use a dynamic panel data approach to estimate the impact of MaPPs on credit growth volatility and the likelihood of credit growth boom and bust episodes. We find that MaPPs reduce credit growth volatility in both advanced economies (AEs) and emerging market economies (EMEs). In addition, MaPPs help to prevent credit surges in EMEs and stops in AEs. Our results show that there is a strong link between net capital flows and credit growth stop episodes. Net capital flow surges trigger a credit surge for EMEs. This suggests that policymakers should consider both MaPPs and capital flow management measures when designing policies to mitigate the risks associated with these phenomena.
ISSN:0923-7992
1573-708X
DOI:10.1007/s11079-023-09744-3