Global Financial Cycle, Household Credit, and Macroprudential Policies

60 Pages Posted: 30 Sep 2017 Last revised: 22 Nov 2021

See all articles by Mircea Epure

Mircea Epure

Universitat Pompeu Fabra - Department of Economics and Business; Barcelona Graduate School of Economics (Barcelona GSE)

Irina Mihai

National Bank of Romania; Bucharest University of Economic Studies

Camelia Minoiu

Board of Governors of the Federal Reserve System

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: November 19, 2021

Abstract

We show that macroprudential policies dampen the impact of global financial conditions on local bank credit cycles. For identification, we exploit exogenous variation in the U.S. VIX and household and business credit registers in a small open economy, where banks depend on foreign funding and macroprudential measures vary over a full boom-bust cycle. When the VIX is low, tighter macroprudential policies (i) reduce household lending, notably for riskier (FX and high DSTI) loans and by banks dependent on foreign funding and (ii) increase local currency lending to real-estate firms, while leaving business lending to other firms unchanged. Furthermore, such periods are associated with (iii) less total lending (to households and firms) and with a lower share of FX loans at the local level, suggesting a compositional shift toward (less risky) local currency loans. As a result, when the VIX is low, tighter macroprudential policies (iv) dampen house prices and economic activity in areas with higher FX-loans.

Keywords: global financial cycle, macroprudential policies, boom-bust credit cycle, bank loans to households and firms, credit registry, emerging marketss

JEL Classification: G01, G21, G28, F30, E58

Suggested Citation

Epure, Mircea and Mihai, Irina and Minoiu, Camelia and Peydro, Jose-Luis, Global Financial Cycle, Household Credit, and Macroprudential Policies (November 19, 2021). Available at SSRN: https://ssrn.com/abstract=3044959 or http://dx.doi.org/10.2139/ssrn.3044959

Mircea Epure

Universitat Pompeu Fabra - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://mirceaepure.com

Barcelona Graduate School of Economics (Barcelona GSE)

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Irina Mihai

National Bank of Romania ( email )

Bucharest
Romania

Bucharest University of Economic Studies ( email )

Tache Ionescu street, no. 11, sector 1
Bucharest
Romania

Camelia Minoiu (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
184
Abstract Views
1,576
rank
137,145
PlumX Metrics