Monetary versus Capital-Based Macroprudential Transmission - Efficiency and Effectiveness: Evidence from Central and South-Eastern European Banking Sectors

This study has a twofold objective. The first one is an assessment of the efficiency of monetary and capital-based macroprudential policy, defined as imposing less interest costs to loan borrowers (non-financial corporations and households). The second objective of this paper is the assessment of the effectiveness of both policies defined as the degree to which each respective policy achieves the smoothing of the credit cycle to mentioned sectors. The sample used in this analysis consists of eight countries from Central and South-Eastern Europe: Croatia, the Czech Republic, Hungary, North Macedonia, Poland, Romania, Serbia and Turkiye. The data are organized as unbalanced panel on aggregate level i.e. referring to the banking sectors and overall economies, covering for the period from 2006q2 to 2019q3. The panel estimations were done by employing fixed effects OLS-SUR-PCSE approach and PMG cointegration to assess the long-term and short-term effects for the period from 2006q2 to 2017q4. Restrictiveness of both policies decreases the cycle of the loans to GDP to non-financial companies and households, in accordance with the theory. Concerning the interest rates to non-financial corporations and households, the monetary policy affects them positively to both sectors, while the capital-based macroprudential policy affects divergently as it increases the households’ interest rates and decreases the non-financial companies’ interest rates. Thus, the capital-based macroprudential policy yields lower interest costs to non-financial companies and restricts the lending i.e. it achieves the restrictive lending goal by implying lower interest costs.