The Impact of Macroprudential Policies on Capital Flows in Cesee

30 Pages Posted: 11 May 2021 Last revised: 18 Nov 2021

See all articles by Markus Eller

Markus Eller

Oesterreichische Nationalbank (OeNB)

Niko Hauzenberger

University of Salzburg

Florian Huber

University of Salzburg

Helene Schuberth

Oesterreichische Nationalbank (OeNB)

Lukas Vashold

Vienna University of Economics and Business

Date Written: May, 2021

Abstract

In line with the recent policy discussion on the use of macroprudential measures to respond to cross-border risks arising from capital flows, this paper tries to quantify to what extent macroprudential policies (MPPs) have been able to stabilize capital flows in Central, Eastern and Southeastern Europe (CESEE) – a region that experienced a substantial boom-bust cycle in capital flows amid the global financial crisis and where policymakers had been quite active in adopting MPPs already before that crisis. To study the dynamic responses of capital flows to MPP shocks, we propose a novel regime-switching factor-augmented vector autoregressive (FAVAR) model. It allows to capture potential structural breaks in the policy regime and to control – besides domestic macroeconomic quantities – for the impact of global factors such as the global financial cycle. Feeding into this model a novel intensity-adjusted macroprudential policy index, we find that tighter MPPs may be effective in containing domestic private sector credit growth and the volumes of gross capital inflows in a majority of the countries analyzed. However, they do not seem to generally shield CESEE countries from capital flow volatility.

JEL Classification: C38, E61, F44, G28

Suggested Citation

Eller, Markus and Hauzenberger, Niko and Huber, Florian and Schuberth, Helene and Vashold, Lukas, The Impact of Macroprudential Policies on Capital Flows in Cesee (May, 2021). ESRB: Working Paper Series 2021/118, Available at SSRN: https://ssrn.com/abstract=3843006 or http://dx.doi.org/10.2139/ssrn.3843006

Markus Eller (Contact Author)

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
Vienna, A-1090
Austria
+43 1 404 20-5227 (Phone)
+43 1 404 20-045227 (Fax)

HOME PAGE: http://www.oenb.at/en/Monetary-Policy/Research/Researchers/Markus-Eller.html

Niko Hauzenberger

University of Salzburg ( email )

Akademiestraße 26
Salzburg, Salzburg 5020
Austria

Florian Huber

University of Salzburg ( email )

Akademiestraße 26
Salzburg, Salzburg 5020
Austria

Helene Schuberth

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Lukas Vashold

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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