How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries
43 Pages Posted: 8 Apr 2019
Date Written: March 2019
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: Suggested Citation