Macroprudential Policy: What Instruments and How to Use them? Lessons From Country Experiences

IMF Working Papers, October 1, 2011

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This paper provides the most comprehensive empirical study of the effectiveness of macroprudential instruments to date.
Using data from 49 countries, the paper evaluates the effectiveness of macroprudential instruments in reducing systemic risk over time and across institutions and markets.
The analysis suggests that many of the most frequently used instruments are effective in reducing pro-cyclicality.
The effectiveness is sensitive to the type of shock facing the financial sector.
The paper identifies conditions under which macroprudential policy is most likely to be effective, as well as conditions under which it may have little impact.

Many frequently used macroprudential instruments are effective in reducing pro-cyclicality.
Effectiveness varies across institutions and markets.
Effectiveness is sensitive to the type of shock facing the financial sector.

The paper identifies conditions under which macroprudential policy is most likely to be effective.
The paper also identifies conditions under which macroprudential policy may have little impact.

Subject: Credit; Currencies; Exchange rate arrangements; Financial crises; Financial sector policy and analysis; Foreign exchange; Macroprudential policy; Money; Systemic risk
Keywords: capital; credit; credit growth; deposit ratio; Eastern Europe; exchange rate; Exchange rate arrangements; fiscal policy tool; foreign currency; growth decline; instruments; interconnectedness; interest rate; liquidity; macroprudential; Macroprudential policy; monetary policy; price inflation; procyclicality; systemic risk; WP