Are Macroprudential Policies Effective Tools to Reduce Credit Growth in Emerging Markets?

Are Macroprudential Policies Effective Tools to Reduce Credit Growth in Emerging Markets?

Title:

Are Macroprudential Policies Effective Tools to Reduce Credit Growth in Emerging Markets?

Number:

17/12

Author(s):

F. Pınar Erdem, Etkin Özen, İbrahim Ünalmış

Language:

English

Date:

May 2017

Abstract:

Macroprudential policies (MPPs) have become a part of the policy toolkit, especially in the aftermath of the 2008 global financial crisis both in advanced and emerging market economies. Hence, there is a growing body of literature investigating effectiveness of such policies. In this paper, using a data set of 30 countries and panel VAR approach, we contribute to this literature by testing whether MPPs are effective in controlling domestic credit growth in emerging markets and developing countries in the wake of a positive global liquidity shock. Results indicate that MPPs are effective to limit domestic credit growth especially during the expansion phase of the credit cycle. Second, the number of MPP tools matter to better manage the domestic credit growth, since insufficient number of measures are unable to prevent leakages and reduce the effectiveness of MPPs under a global liquidity shock.

Keywords:

Macroprudential policies, Credit growth, Global liquidity, Credit cycle, Panel VAR

JEL Codes:

E43; E58; G18; G28

Are Macroprudential Policies Effective Tools to Reduce Credit Growth in Emerging Markets?
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