econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 18 May 2016

International Evidence On The Use And Effectiveness Of Macroprudential Policies

from Liberty Street Economics

-- this post authored by Ozge Akinci

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.

Defining a Macroprudential Policy Index

Macroprudential policy tools include caps on loan-to-value (LTV) ratios for housing loans, caps on debt service-to-income (DSTI) ratios, and quantitative limits on mortgages. Other tools include time-varying capital requirements (CR), loan loss provisioning (LP), consumer loan limits, and credit growth ceilings. Note that CRs are often implemented by adjusting the risk weights of specific bank asset classes, such as housing or consumer loans. Similarly, LPs involve adjusting provisions either on a general basis or for specific assets such as housing or consumer loans.

We have constructed a novel quarterly macroprudential policy index using data from fifty-seven advanced and emerging economies from 2000 to 2013 (see this recent working paper). The index is built by categorizing a policy action in a given month as a tightening (+1) or an easing (-1) for each of the seven tools listed above. The chart below shows the total number of tightening and easing policy actions for each macroprudential tool over the sample period. The most frequently used tools have been caps on LTV ratios and CRs. Adjustments of other measures such as caps on DSTI ratios, lending restrictions on mortgages, and LPs have also been popular but less frequent. Tightenings have been much more common than easings across all groups, with actions more frequent in emerging economies.

Incidence of MAPP Measures, 2000-2013

The MAPP index for each country is created by summing the indicator values across all seven macroprudential tools. We also created subindexes grouping housing-related measures (LTV, DSTI, and "other" housing measures) and non-housing-related measures (CRs and LPs that target general credit conditions, consumer loan limits, and credit growth ceilings). The following chart summarizes the results over time for advanced and emerging economies. Both sets of countries increased their use of macroprudential policy tools after the financial crisis as policymakers became more attentive to systemic risks. Nearly all of the measures used in the advanced economies targeted the housing sector while emerging economies implemented both housing and non-housing measures.

Evolution of MAPP Use, 2000-13

Other Policies

Macroprudential policies are not the only tools used to control credit growth and house prices. The monetary policy rate, reserve requirements on domestic currency deposits, and capital controls also affect financial conditions. The table below shows the correlations in the use of macroprudential policies and these other policy tools. Policymakers in foreign economies generally use macroprudential measures, the monetary policy rate, and reserve requirements as complements. The correlations are weakly positive with the exception of housing-related macroprudential measures and policy rate changes, which are negatively correlated. This negative relationship might be reflecting the difficulty faced by policymakers who use monetary policy to deal with housing booms. Emerging economies, prone to volatile capital flows, also rely on capital controls to affect domestic financial conditions.

<img class="asset asset-image at-xid-6a01348793456c970c01b7c85ce4ff970b img-responsive" alt="Correlations between MAPP and Other Policy Measure Indexes" title="Correlations" between="" mapp="" and="" other="" policy="" measure="" indexes"="" data-cke-saved-src="http://libertystreeteconomics.typepad.com/.a/6a01348793456c970c01b7c85ce4ff970b-450wi" src="http://libertystreeteconomics.typepad.com/.a/6a01348793456c970c01b7c85ce4ff970b-450wi" style="border: 0px; margin: 0px; padding: 0px; font-size: 0px; color: transparent; vertical-align: middle; font-family: Georgia, 'Times New Roman', Times, serif; line-height: 18px; width: 460px;">

Effects of Macroprudential Policies

The MAPP index allows us to estimate a dynamic panel data model that quantifies the effects of these policies on bank credit and house prices, after taking into account the impact of GDP growth, changes in the monetary policy rate, and global financial conditions. Our estimations suggest that macroprudential tightening has significantly reduced credit growth and house price appreciation. As shown in the chart below, the growth rate in bank credit and house prices would have been significantly higher over the 2011-13 period in the absence of these measures.

Counterfactuals Illustrating Economic Importance

These results provide new evidence in support of adopting macroprudential policies to attenuate credit and house price cycles. The evidence, it should be noted, does not demonstrate that these tools can fully eliminate booms.

Disclaimer

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Source

http://libertystreeteconomics.newyorkfed.org/2016/05/international-evidence-on-the-use-and-effectiveness-of-macroprudential-policies.html#.VzxPIpErKUk


About the Author

Ozge AkinciOzge Akinci is an economist in the Federal Reserve Bank of New York's Research and Statistics Group.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Expected Effects of Petitions to Improve the Monetary System
Energy and Falling Productivity
News Blog
How To Get People To Exercise
September 2016 Conference Board Consumer Confidence Now At Highest Level Since the Great Recession
Richmond Fed Manufacturing Survey Remains In Contraction In September 2016.
September 2016 Chemical Activity Barometer Continues to Signal Improving Economic Growth
Case-Shiller Home Price Index July 2016 Year-over-Year Rate of Growth Decelerates
Between Geopolitics And Technology
Infographic Of The Day: See Every Single Part Inside An IPhone
Early Headlines: Asia Stocks Mixed, Europa Water Plumes, All About The Debate, Putin Reacts To Debate, Oblivious Students, India Rocket Success, China Profits Surge And More
September 26, 2016 Weather and Climate Report - Not Quite the Camino Real
The Dominant Forces In The U.S. Gun Market
69 Percent Of Americans Have Less Than One Thousand Dollars In Savings
Average Gasoline Prices for Week Ending 26 September 2016 Unchanged
Genetic Studies Reveal Diversity Of Early Human Populations - And Pin Down When We Left Africa
Investing Blog
Monday Morning Call 26 September
We're Back Here We Started
Opinion Blog
Housing Inflation- A Simple Case Of Supply And Demand Exacerbated By Low Rates
Heading For A Fall? With Summer Over, Europe Must Face Up To Its Mounting Crises
Precious Metals Blog
War On Cash Turns To $20, $50, And $100 Bills
Live Markets
27Sep2016 Market Update: Wall Street Gains From Tech Stocks And A Three Percentage Loss In Crude Prices, Indicators Remain Fractionally Bullish
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved