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Did macroprudential policies play a role in stabilizing the credit and capital flow cycle in CESEE?

In: 30 Years of Transition in Europe

Author

Listed:
  • Markus Eller
  • Helene Schuberth
  • Lukas Vashold
Abstract
Taking up the increasingly discussed argument that strong macroprudential frameworks could be a useful cushion against external shocks (especially in the context of a fixed exchange rate regime), we study the impact of macroprudential policy intensity on credit and capital flow dynamics for a sample of EU Member States in CESEE. We introduce a novel macroprudential policy index for measuring not only the occurrence – as it is done in most of the literature – but also the strength of the implemented measures. The index reveals that several CESEE countries had already actively used macroprudential policies before the global financial crisis, with a few countries becoming more active only in the aftermath of the crisis. Over time, there have been considerable shifts in the role of different instruments. Using the intensity-adjusted index in a panel regression framework, we find that tighter macroprudential policies could be effective in containing private sector credit growth and gross capital inflows into CESEE. Finally, borrower-based macroprudential measures, such as LTV or DSTI limits, tend to have a larger and more robust impact than broader sets of macroprudential instruments.

Suggested Citation

  • Markus Eller & Helene Schuberth & Lukas Vashold, 2020. "Did macroprudential policies play a role in stabilizing the credit and capital flow cycle in CESEE?," Chapters, in: Robert Holzmann & Doris Ritzberger-Grünwald & Helene Schuberth (ed.), 30 Years of Transition in Europe, chapter 12, pages 141-159, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:19895_12
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