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Credit Cycles and Capital Flows : Effectiveness of the Macroprudential Policy Framework in Emerging Market Economies

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  • Salih Fendoglu

Abstract

I assess the effectiveness of macroprudential policy tools in containing credit cycles per se or the impact of portfolio inflows on the cycles in major emerging market economies. The results show that borrower-based tools, measures with a domestic focus, and domestic reserve requirements are particularly effective. The findings are, in most cases, stronger for the recent period during which most of the macroprudential actions are undertaken, and generally hold for alternative definitions of credit cycle, the monetary policy stance, and portfolio inflows. Moreover, the analyses focusing on the recent period and the regional analyses suggest that foreign-currency based measures are effective. Still, these measures being implemented in a few countries or only recently makes it harder to draw general conclusions. Lastly, financial-institutions-based measures are found to be effective for the Emerging Europe which has resorted to these policies relatively frequently. This result hints at the importance of building up experience in implementing macroprudential measures.

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  • Salih Fendoglu, 2017. "Credit Cycles and Capital Flows : Effectiveness of the Macroprudential Policy Framework in Emerging Market Economies," Working Papers 1713, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1713
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    Cited by:

    1. Salih Fendoglu, 2016. "Credit cycles and macroprudential policy framework in emerging countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential policy, volume 86, pages 17-25, Bank for International Settlements.
    2. Agénor, Pierre-Richard & Alper, Koray & Pereira da Silva, Luiz, 2018. "External shocks, financial volatility and reserve requirements in an open economy," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 23-43.
    3. Salih Fendoğlu & Eda Gülşen & José-Luis Peydró, 2019. "Global liquidity and impairment of local monetary policy," Economics Working Papers 1680, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Valdivia Coria, Joab Dan & Valdivia Coria, Daney David, 2018. "Leaning Against the Wind: Efectos de la Política Macroprudencial en el Crecimiento Sectorial
      [Leaning Against the Wind: Effects of Macroprudential Policy on Sectoral Growth]
      ," MPRA Paper 93441, University Library of Munich, Germany.
    5. Yavuz Arslan and Christian Upper, 2017. "Macroprudential frameworks: implementation and effectiveness," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential frameworks, implementation and relationship with other policies, volume 94, pages 25-47, Bank for International Settlements.
    6. Pierre-Richard Agénor & Leonardo Gambacorta & Enisse Kharroubi & Enisse Kharroubi, 2018. "The effects of prudential regulation, financial development and financial openness on economic growth," BIS Working Papers 752, Bank for International Settlements.
    7. Klaus Schmidt-Hebbel, 2019. "Macroeconomic Institutions: Lessons from World Experience for MENA Countries," Working Papers 1311, Economic Research Forum, revised 21 Aug 2019.
    8. Norring, Anni, 2019. "Macroprudential policy spillovers and international banking - Taking the gravity approach," ESRB Working Paper Series 101, European Systemic Risk Board.

    More about this item

    Keywords

    Credit cycles; Capital flows; Macroprudential policies; Reserve requirements; Emerging market economies;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • 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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