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How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries

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  • Mr. Tigran Poghosyan

Abstract

This paper assesses the effectiveness of lending restriction measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit. We use data on 99 lending standard restrictions implemented in 28 EU countries over 1990–2018. The results suggest that lending restriction measures are generally effective in curbing house prices and credit. However, the impact is delayed and reaches its peak only after three years. In addition, the impact is asymmetric, with tightening measures having weaker association with target variables compared to loosening measures. The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions. The results have practical implications for macroprudential authorities.

Suggested Citation

  • Mr. Tigran Poghosyan, 2019. "How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries," IMF Working Papers 2019/045, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/045
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    More about this item

    Keywords

    WP; macroprudential regulation; financial stability; credit; house prices; monetary policy rate; restriction measure; target variable; house price growth; lending restriction measure; number of observation; property price growth; credit growth; Housing prices; Central bank policy rate; Macroprudential policy instruments; Foreign banks; Global;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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