Effectiveness and Channels of Macroprudential Instruments: Lessons from the Euro Area
IMF Working Papers, January 12, 2016
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- Effectiveness and Channels of Macroprudential Instruments: Lessons from the Euro Area
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Bibliographic details
- Authors: Thierry Tressel, Yuanyan S Zhang
- Published: January 12, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513547404.001
Summary and key findings
- The crisis highlighted the importance of setting up macro-prudential oversight frameworks and having effective macro-prudential instruments to mitigate growing financial imbalances.
- New approach: Uses the euro area Bank Lending Survey to assess effectiveness of macro-prudential policies in containing credit growth and house price appreciation in mortgage markets.
- Main empirical findings:
- Instruments targeting the cost of bank capital are most effective in slowing down mortgage credit growth.
- The impact of cost-of-capital instruments is transmitted mainly through price margins, the same banking channel as monetary policy.
- Limits on loan-to-value (LTV) ratios are also effective, especially when monetary policy is excessively loose.
Methodology and scope
- Data source: euro area Bank Lending Survey.
- Focus: mortgage markets, credit growth, and house price appreciation.
- Analytical emphasis: channels of transmission (price margins/banking channel) and comparison of instrument effectiveness (cost of bank capital vs. LTV limits).
Policy implications and recommendations
- Strengthen macro-prudential oversight frameworks to ensure readiness to deploy instruments when financial imbalances emerge.
- Use capital-cost–targeting instruments to directly slow mortgage credit growth through price margins.
- Deploy LTV limits as a complementary tool, particularly when monetary policy settings are excessively loose and may otherwise amplify credit and house price cycles.
Publication and metadata
- Authors: Thierry Tressel, Yuanyan S Zhang
- Publication date: January 12, 2016
- Series: Working Paper No. 2016/004
- Issue: 004
- Volume: 2016
- Pages: 32
- DOI: https://doi.org/10.5089/9781513547404.001
- Stock No: WPIEA2016004
- ISBN: 9781513547404
- ISSN: 1018-5941
- Subject keywords: Banking, Credit, Econometric analysis, Estimation techniques, Financial institutions, Financial statements, Housing prices, Money, Mortgages, Prices, Public financial management (PFM)
- Additional keywords: bank lending, capital requirement, cost of funds, Credit, credit growth, Estimation techniques, Financial statements, Global, house price appreciation, Housing prices, lending standard, lending survey, liquidity position, LTV ratios, macroprudential policy, mortage, mortgage loan, Mortgages, WP
Source: IMF Working Paper — "Effectiveness and Channels of Macroprudential Instruments: Lessons from the Euro Area" (January 12, 2016).