How effective are macroprudential policies? An empirical investigation

In recent years, policymakers have generally relied on macroprudential policies to address financial stability concerns. However, our understanding of these policies and their efficacy is limited. In this paper, we construct a novel index of macroprudential policies in 57 advanced and emerging economies covering the period from 2000:Q1 to 2013:Q4, with tightenings and easings recorded separately. The effectiveness of these policies in curbing credit growth and house price appreciation is then assessed using a dynamic panel data model. The main findings of the paper are: (1) Macroprudential policies have been used far more actively after the global financial crisis in both advanced and emerging economies. (2) These policies have primarily targeted the housing sector, especially in the advanced economies. (3) Macroprudential policies are usually changed in tandem with bank reserve requirements, capital flow restrictions, and monetary policy. (4) Our analysis suggests that macroprudential tightening is associated with lower bank credit growth, housing credit growth, and house price appreciation. (5) Targeted policies - for example, those specifically intended to limit house price appreciation - seem to be more effective, especially in economies where bank finance is important.