Examining Macroprudential Policy and its Macroeconomic Effects – Some New Evidence

37 Pages Posted: 13 Dec 2019

See all articles by Soyoung Kim

Soyoung Kim

Seoul National University

Aaron N. Mehrotra

Bank for International Settlements (BIS)

Date Written: December 11, 2019

Abstract

In this paper, we provide empirical evidence about the broader macroeconomic effects of macroprudential policies and the underlying transmission mechanism, as well as the response of macroprudential policy to financial risks. To this end, we use structural panel vector autoregressions and a dataset covering 32 advanced and emerging economies. We show that macroprudential policy shocks have effects on real GDP, the price level and credit that are very similar to those of monetary policy shocks, but the detailed transmission of the two policies is different. Whereas macroprudential policy shocks mostly affect residential investment and household credit, monetary policy shocks have more widespread effects on the economy. Moreover, while positive credit shocks are generally met with tighter macroprudential policy, macro-financial country characteristics such as the exchange rate regime and the level of financial development affect the policy response.

Keywords: macroprudential policy, monetary policy, credit, macroeconomic effect, macroprudential policy response

JEL Classification: E58, E61, G28

Suggested Citation

Kim, Soyoung and Mehrotra, Aaron N., Examining Macroprudential Policy and its Macroeconomic Effects – Some New Evidence (December 11, 2019). BIS Working Paper No. 825, Available at SSRN: https://ssrn.com/abstract=3502461

Soyoung Kim (Contact Author)

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)
+82-2-880- 2689 (Phone)

Aaron N. Mehrotra

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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