Paper #1590

Title:

Global financial cycle, household credit, and macroprudential policies

Authors:

Mircea Epure, Irina Mihai, Camelia Minoiu and José-Luis Peydró

Date:

November 2017 (Revised: March 2023)

Abstract:

We show that macroprudential policies dampen the impact of global financial conditions on local bank credit cycles. For identification, we exploit variation in the U.S. VIX and household and business credit registers in an emerging market economy where banks depend on foreign funding and macroprudential measures vary over the full cycle. Our results suggest that when the VIX is low, tighter macroprudential policies reduce household lending, notably for riskier (FX and high DSTI) loans and by banks dependent on foreign funding. Moreover, they increase (less regulated) local currency lending to real estate firms, while leaving business lending to other firms unchanged. Such periods are associated with less subsequent total lending to households and firms and with a lower share of FX loans at the local level. Consistently, when the VIX is low, tighter macroprudential policies dampen house prices and economic activity.

Keywords:

macroprudential policies, global financial cycle, cross-border spillovers, household credit, bank loans

JEL codes:

E58, F0, F40, G21, G28, D14

Area of Research:

Management and Organization Studies / Finance and Accounting

Comment:

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