Macroprudential Policy in the Euro Area

It is now widely accepted that monetary authorities should have a mandate to safeguard financial stability and that macroprudential policies should be an integral part of such a mandate. However, our understanding of the effectiveness of macroprudential policies and their impact on monetary policy target variables and, more broadly, on macroeconomic outcomes, is still limited. This paper addresses that gap and examines the development and impact of macroprudential policies in the euro area. The contribution of the paper is twofold. First, we construct a novel index that captures the stance of the macroprudential policy and we highlight its main stylised facts since the inception of the euro in 1999. Second, we employ a combination of a narrative approach and a structural VAR method to identify both unanticipated and anticipated exogenous variations in macroprudential policies. Our results show that unanticipated or surprise shocks and anticipated or news macroprudential policy shocks exhibit differentiated effects on macroeconomic variables and that they both contribute over the medium term to safeguard financial stability. We also nd significant linkages between monetary and macroprudential policies over a sample period that includes events such as the great financial crisis and the sovereign debt crisis.