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Are Macroprudential Policies Effective Tools to Reduce Credit Growth in Emerging Markets?

Author

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  • Fatma Pinar Erdem
  • Etkin �zen
  • Ibrahim Unalmis

Abstract

Macroprudential policies (MPPs) have become a part of the policy toolkit, especially in the aftermath of the 2008 global financial crisis both in advanced and emerging market economies. Hence, there is a growing body of literature investigating effectiveness of such policies. In this paper, using a data set of 30 countries and panel VAR approach, we contribute to this literature by testing whether MPPs are effective in controlling domestic credit growth in emerging markets and developing countries in the wake of a positive global liquidity shock. Results indicate that MPPs are effective to limit domestic credit growth especially during the expansion phase of the credit cycle. Second, the number of MPP tools matter to better manage the domestic credit growth, since insufficient number of measures are unable to prevent leakages and reduce the effectiveness of MPPs under a global liquidity shock.

Suggested Citation

  • Fatma Pinar Erdem & Etkin �zen & Ibrahim Unalmis, 2017. "Are Macroprudential Policies Effective Tools to Reduce Credit Growth in Emerging Markets?," Working Papers 1712, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1712
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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