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The Impact of Seven Macroprudential Policy Instruments on Financial Stability in Six Euro Area Economies

Author

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  • Lorenčič Eva

    (Credit Suisse AG, Zurich, Switzerland and University of Maribor, Maribor, Slovenia)

  • Festić Mejra

    (University of Maribor, Maribor, Slovenia)

Abstract

The aim of this paper is to investigate whether macroprudential policy instruments can influence the credit growth rate and hence financial stability. We use a fixed effects panel regression model to test the following hypothesis for six euro area economies (Austria, Finland, Germany, Italy, Netherlands and Spain) during time span 2010 Q3 to 2018 Q4: “Macroprudential policy instruments (degree of maturity mismatch; interbank loans as a percentage of total loans; leverage ratio; non-deposit funding as a percentage of total funding; loan-to-value ratio; loan-to-deposit ratio; solvency ratio) enhance financial stability, as measured by credit growth”. Our empirical results suggest that the degree of maturity mismatch, non-deposit funding as a percentage of total funding, loan-to-value ratio and loan-to-deposit ratio exhibit the predicted impact on the credit growth rate and therefore on financial stability. On the other hand, interbank loans as a percentage of total loans, leverage ratio, and solvency ratio do not exhibit the expected impact on the response variable. Since only four regressors (out of seven) have the signs predicted by our hypothesis, we can only partly confirm it.

Suggested Citation

  • Lorenčič Eva & Festić Mejra, 2021. "The Impact of Seven Macroprudential Policy Instruments on Financial Stability in Six Euro Area Economies," Review of Economic Perspectives, Sciendo, vol. 21(3), pages 259-290, September.
    • Handle: RePEc:vrs:reoecp:v:21:y:2021:i:3:p:259-290:n:3
    DOI: 10.2478/revecp-2021-0012
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    More about this item

    Keywords

    Macroprudential policy; macroprudential instruments; systemic risk; financial stability;
    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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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