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The impact of macroprudential policy on financial stability in selected EU countries

Author

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  • Eva Lorencic

    (Credit Suisse Group AG, Zurich, Switzerland; University of Maribor, Faculty of Economics and Business, Maribor, Slovenia)

  • Mejra Festic

    (University of Maribor, Faculty of Economics and Business, Maribor, Slovenia)

Abstract

The aim of this paper is to examine the impact of selected macroprudential policy instruments on financial stability. We focus on six euro area economies (Belgium, Cyprus, Germany, Spain, Ireland and the Netherlands) over sixteen quarters (from 2015 Q1 to 2018 Q4) by using the research method of panel econometrics. The following three banking sector aggregate balance sheet variables exhibit the expected impact on credit growth and cyclical fluctuations of the economy: common equity tier one ratio, coverage ratio, and interconnectedness ratio. Moreover, common equity tier one ratio, loan-to-deposit ratio, and leverage ratio exhibit the expected impact on house price growth. Based on our empirical findings, a case can be made for the usage of carefully crafted macroprudential policy instruments that target selected financial and macroeconomic variables with the ultimate goal of attaining the stability of the financial system as a whole.

Suggested Citation

  • Eva Lorencic & Mejra Festic, 2022. "The impact of macroprudential policy on financial stability in selected EU countries," Public Sector Economics, Institute of Public Finance, vol. 46(1), pages 141-170.
    • Handle: RePEc:ipf:psejou:v:46:y:2022:i:1:p:141-170
    DOI: 10.3326/pse.46.1.5
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    macroprudential policy; macroprudential instruments; financial stability;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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