Macroprudential policy and its impact on the Credit Cycle

We identify a novel set of macroprudential policy shocks and estimate their effects on credit cycle variables in a panel of 13 EU countries during 1999-2018. We find that a typical macroprudential policy tightening shock reduces bank credit-to-GDP by 1.8% points and household credit-to-GDP by 1.6% points over a period of four years. The non-financial corporations and total credit-to-GDP ratios, however, do not react significantly. Using state-dependent local projections, we further find that the effects on the credit-to-GDP ratios are stronger in credit cycle upturns than in downturns. We also detect a sizable leakage of firm credit from the banking to the non-banking sector next to a shift from firm to household credit.