How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries

IMF Working Papers, March 1, 2019

Source details

Canonical URL: How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries

Paper assesses the effectiveness of lending restriction measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit.
Uses data on 99 lending standard restrictions implemented in 28 EU countries over 1990–2018.
Key empirical findings:
- Lending restriction measures are generally effective in curbing house prices and credit.
- The impact is delayed and reaches its peak only after three years.
- The impact is asymmetric: tightening measures have weaker association with target variables compared to loosening measures.
- The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions.
Practical implication: Results have practical implications for macroprudential authorities.

Number of lending standard restrictions analyzed: 99
Number of countries: 28 EU countries
Time period covered: 1990–2018
Policy instruments examined: loan-to-value ratios, debt-service-to-income ratios, and other lending restriction measures.

Timing: Authorities should consider that effects of lending restrictions are delayed and peak after three years when designing and evaluating macroprudential interventions.
Asymmetry: Loosening measures may produce stronger associations with house prices and credit than tightening measures; policy calibration should reflect this asymmetry.
Design and enforcement: Legally-binding measures and measures involving sanctions are associated with stronger effects, suggesting enforcement and legal design matter for effectiveness.
Cross-country variation: Effects are stronger outside the euro area, indicating country-specific institutional and policy frameworks influence outcomes.