The Effectiveness of Borrower-Based Macroprudential Measures: A Quantitative Analysis for Slovakia

IMF Working Papers, July 17, 2020

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Developed a semi-structural quantitative framework combining micro and macroeconomic data.
Expands on the integrated dynamic household balance sheet model of Gross and Población (2017) by introducing an endogenous loan granting feature.
Quantifies the potential (ex-ante) impact of borrower-based macroprudential measures on resilience parameters compared with a counterfactual no-policy scenario under adverse macroeconomic conditions.

Borrower-based measures can noticeably improve household and bank resilience to macroeconomic downturns, in particular when multiple measures are applied.
The measures tend to complement each other, as the impact of individual instruments is transmitted via different channels.
Resilience benefits are more sizeable if the measures effectively limit the accumulation of risks before an economic downturn occurs, suggesting that an early, preemptive implementation of borrower-based measures is warranted.

Consider applying combinations of borrower-based macroprudential measures rather than relying on single instruments to enhance resilience.
Implement borrower-based measures preemptively to limit risk accumulation ahead of potential downturns.
Use models that incorporate endogenous loan granting to better assess ex-ante effects of macroprudential policies on household and bank balance sheets.

Source: IMF Working Paper — "The Effectiveness of Borrower-Based Macroprudential Measures: A Quantitative Analysis for Slovakia", July 17, 2020.