How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries

43 Pages Posted: 8 Apr 2019

See all articles by Tigran Poghosyan

Tigran Poghosyan

International Monetary Fund (IMF)

Date Written: March 2019

Abstract

This paper assesses the effectiveness of lending restriction measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit. We use data on 99 lending standard restrictions implemented in 28 EU countries over 1990-2018. The results suggest that lending restriction measures are generally effective in curbing house prices and credit. However, the impact is delayed and reaches its peak only after three years. In addition, the impact is asymmetric, with tightening measures having weaker association with target variables compared to loosening measures. The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions. The results have practical implications for macroprudential authorities.

Keywords: Monetary policy instruments, Exchange rate policy, Central banks, Monetary policy, Monetary expansion, macroprudential regulation, financial stability, credit, house price, Kleibl, target variable, type of measure, real GDP growth, dependent variable

JEL Classification: G18, G28, E65, E52, G21, E01, O24, E44

Suggested Citation

Poghosyan, Tigran, How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries (March 2019). IMF Working Paper No. 19/45. Available at SSRN: https://ssrn.com/abstract=3367430

Tigran Poghosyan (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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