Macroprudential Policy and Bank Systemic Risk: Does Inflation Targeting Matter?
IMF Working Papers, June 2, 2023
Source details
- Canonical URL
- Macroprudential Policy and Bank Systemic Risk: Does Inflation Targeting Matter?
Other formats
Bibliographic details
- Authors: Mohamed Belkhir, Sami Ben Naceur, Bertrand Candelon, Woon Gyu Choi, Farah Mugrabi
- Published: June 2, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400245008.001
Summary
- This paper investigates macroprudential policy effects on bank systemic risk and the role of inflation targeting in such effects.
- Using bank-level data for 45 countries comprising various monetary and exchange rate regimes, the regime-dependent dynamic panel regression results point to complementarities between monetary and macroprudential policies.
- The tightening of most macroprudential tools—including DSTI and LTV limits, and capital requirements—reduces bank systemic risk further under inflation targeting.
- The findings lend credence to the view that inflation targeting strengthens macroprudential policy roles in mitigating financial stability risks.
Methods and Data
- Data: bank-level data for 45 countries comprising various monetary and exchange rate regimes.
- Empirical approach: regime-dependent dynamic panel regression.
Key Findings
- Complementarities exist between monetary and macroprudential policies.
- Tightening of most macroprudential tools reduces bank systemic risk more under inflation targeting.
- Specific tools cited: DSTI limits, LTV limits, and capital requirements.
Policy Implications and Recommendations
- Inflation targeting can strengthen macroprudential policy effectiveness in mitigating financial stability risks.
- Policymakers may consider the interaction between monetary policy frameworks and macroprudential instruments when designing financial stability strategies.
Content in this bundle
- Working Paper