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Macroprudential Policy and Bank Systemic Risk: Does Inflation Targeting Matter?

Author

Listed:
  • Mugrabi, Farah

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • Belkhir, Mohamed

    (International Monetary Fund)

  • Naceur, Sami

    (International Monetary Fund)

  • Candelon, Bertrand

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • Choi, Woon Gyu

    (International Monetary Fund)

Abstract

This paper examines whether inflation targeting (IT) enhances the effectiveness of macroprudential policies in reducing banks’ contribution to systemic risk measured by SRISK. Using bank-level data for 47 countries, our regime-dependent panel regressions suggest that tools such as DSTI limits, the CCyB, conservation buffers, and leverage limits are relatively more effective under IT. Loan restrictions appear less effective, while loan-to-value (LTV) caps show impact only in post-GFC samples. Liquidity and reserve requirements reduce SRISK under IT in higher-frequency estimations. Our findings lend credence to the view that IT strengthens the role of macroprudential policy in mitigating financial stability risks.

Suggested Citation

  • Mugrabi, Farah & Belkhir, Mohamed & Naceur, Sami & Candelon, Bertrand & Choi, Woon Gyu, 2025. "Macroprudential Policy and Bank Systemic Risk: Does Inflation Targeting Matter?," LIDAM Reprints LFIN 2025015, Université catholique de Louvain, Louvain Finance (LFIN).
    • Handle: RePEc:ajf:louvlr:2025015
    DOI: https://doi.org/10.1016/j.ememar.2025.101397
    Note: In: Emerging Markets Review, 2025
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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