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The effects of macroprudential policies on managing capital flows

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  • Idil Uz Akdogan

    (Yeditepe University)

Abstract

The implementation of macroprudential policies for improving a country’s financial stability has become more common in emerging markets. The aim of this paper is to analyse the effect of macroprudential policy on both capital flow volatility and price stability in emerging market economies. The analysis covers the Global Financial Crisis and post-crisis period. The effects of general macroprudential variables including leverage growth and credit growth and specific instruments, namely loan-to-value caps and reserve requirements on capital inflow, capital outflow and price stability have been tested. Propensity score matching techniques have been used to measure the effectiveness of various macroprudential policy measures on capital flow volatility. Major findings indicate monetary policy instruments are effective in pursuing both monetary policy objectives and macroprudential objectives. Short-term capital account volatility is seen to respond to macroprudential policy instruments. Propensity score matching was only successfully implemented for capital volatility. Results show that increased measures for macroprudential policy are effective for capital outflow and, decreased measures for macroprudential policy are effective, to a lesser extent, for capital inflows. Furthermore, meaningful correlation between increased macroprudential measures during periods of tight monetary policy exists only for capital outflows.

Suggested Citation

  • Idil Uz Akdogan, 2020. "The effects of macroprudential policies on managing capital flows," Empirical Economics, Springer, vol. 58(2), pages 583-603, February.
    • Handle: RePEc:spr:empeco:v:58:y:2020:i:2:d:10.1007_s00181-018-1541-5
    DOI: 10.1007/s00181-018-1541-5
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    1. Ashima Goyal & Akhilesh Verma, 2019. "Emerging Markets Perspectives on G-20 led Financial Reforms," Working Papers id:13042, eSocialSciences.

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    More about this item

    Keywords

    Macroprudential policy; Capital flow; Global financial crisis;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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