Effectiveness and Channels of Macroprudential Instruments: Lessons from the Euro Area

Author/Editor:

Thierry Tressel ; Yuanyan S Zhang

Publication Date:

January 12, 2016

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The crisis has highlighted the importance of setting up macro-prudential oversight frameworks, having effective macro-prudential instruments in place to be called upon to mitigate growing financial imbalances as needed. We develop a new approach using the euro area Bank Lending Survey to assess the effectiveness of macro-prudential policies in containing credit growth and house price appreciation in mortgage markets. We find instruments targeting the cost of bank capital most effective in slowing down mortgage credit growth, and that the impact is transmitted mainly through price margins, the same banking channel as monetary policy. Limits on loan-to-value ratios are also effective, especially when monetary policy is excessively loose.

Series:

Working Paper No. 2016/004

Subject:

English

Publication Date:

January 12, 2016

ISBN/ISSN:

9781513547404/1018-5941

Stock No:

WPIEA2016004

Pages:

32

Please address any questions about this title to publications@imf.org