Macroprudential Policies and Capital Controls Over Financial Cycles

Author: Maria Arakelyan, Adam Gersl, and Mr. Martin Schindler

Volume/Issue: Volume 2023 Issue 171

Publication date: August 2023

ISBN: 9798400248757

$20.00

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Topics covered in this book

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Exports and Imports , Economics- Macroeconomics , Money and Monetary Policy , Economics / General , Macroprudential measures , capital controls , financial stability , credit cycles , capital control measure , credit bust , Net policy tightening , credit growth , boom episode , Credit booms , Macroprudential policy , Macroprudential policy instruments , Capital inflows , Global

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Summary

In this paper we assess the effectiveness of macroprudential policies and capital controls in supporting financial stability. We construct a large and granular dataset on prudential and capital flow management measures covering 53 countries during 1996-2016. Conditional on a credit boom, we study the impact of these policy measures on the probability of the credit boom ending in a bust. Our analysis suggests that macroprudential tools are effective from this perspective. If credit booms are accompanied by capital flow surges, in addition to macroprudential tools, capital controls on money market instruments including cross-border interbank lending tend to contribute to reducing the likelihood of a credit bust.