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Global Financial Cycle, Household Credit, and Macroprudential Policies

Author

Listed:
  • Mircea Epure

    (Department of Economics and Business, Universitat Pompeu Fabra, 08005 Barcelona, Spain; UPF Barcelona School of Management, 08008 Barcelona, Spain; Barcelona School of Economics, 08005 Barcelona, Spain)

  • Irina Mihai

    (Bucharest University of Economic Studies, Bucharest 010374, Romania; National Bank of Romania, Bucharest 030031, Romania)

  • Camelia Minoiu

    (Federal Reserve Bank of Atlanta, Atlanta, Georgia 30309)

  • José-Luis Peydró

    (Imperial College London, London SW7 2BX, United Kingdom; Catalan Institution for Research and Advanced Studies–Universitat Pompeu Fabra, 08002 Barcelona, Spain)

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. volatility index (VIX) and household and business credit registers in an emerging market economy in which 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 (foreign currency (FX) and high debt-service-to-income) loans and by banks dependent on foreign funding. Moreover, they increase (less regulated) local currency lending to real estate firms. 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.

Suggested Citation

  • Mircea Epure & Irina Mihai & Camelia Minoiu & José-Luis Peydró, 2024. "Global Financial Cycle, Household Credit, and Macroprudential Policies," Management Science, INFORMS, vol. 70(11), pages 8096-8115, November.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:11:p:8096-8115
    DOI: 10.1287/mnsc.2024.4981
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