Discussion Paper

International Evidence on the Use and Effectiveness of Macroprudential Policies

Abstract: In recent years, policymakers in advanced and emerging economies have employed a variety of macroprudential policy tools?targeted rules or requirements that enhance the stability of the financial system as a whole by addressing the interconnectedness of individual financial institutions and their common exposure to economic risk factors. To examine the foreign experience with these tools, we constructed a novel macroprudential policy (MAPP) index. This index allows us to quantify the effects of these policies on bank credit and house prices, two variables that are often the target of policymakers because of their links to boom-bust leverage cycles. We then used the index in the empirical analysis to measure the effectiveness of these policies in emerging market countries and advanced economies. Our estimates suggest that macroprudential tightening can significantly reduce credit growth and house price appreciation.

Keywords: Macroprudential Policy; Bank Credit; Boom-Bust Leverage Cycles; House Prices;

JEL Classification: F00; E2;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2016-05-18

Number: 20160518