IDEAS home Printed from https://ideas.repec.org/p/ise/remwps/wp01812021.html
   My bibliography  Save this paper

Macroprudential Policy and Aggregate Demand

Author

Listed:
  • André Teixeira
  • Zoë Venter

Abstract

This paper assesses the impact of macroprudential policy (MaPP) on aggregate demand in the EU between 2000-2019. Using a difference-in-differences approach, we find that MaPP reduces household consumption and increases firm investment. These effects are relatively mild in the short run but become more pronounced in the long run. Our findings point to a weaker macroeconomic impact than suggested in previous studies.

Suggested Citation

  • André Teixeira & Zoë Venter, 2021. "Macroprudential Policy and Aggregate Demand," Working Papers REM 2021/0181, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp01812021
    as

    Download full text from publisher

    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0181_2021.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    3. Jeffrey M. Wooldridge, 2005. "Fixed-Effects and Related Estimators for Correlated Random-Coefficient and Treatment-Effect Panel Data Models," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 385-390, May.
    4. Veronica Guerrieri & Guido Lorenzoni, 2017. "Credit Crises, Precautionary Savings, and the Liquidity Trap," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1427-1467.
    5. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1469-1513.
    6. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    7. Mr. Christopher Carroll & Mr. Martin Sommer & Mr. Jiri Slacalek, 2012. "Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects," IMF Working Papers 2012/219, International Monetary Fund.
    8. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    9. Pesaran, M. Hashem & Vanessa Smith, L. & Yamagata, Takashi, 2013. "Panel unit root tests in the presence of a multifactor error structure," Journal of Econometrics, Elsevier, vol. 175(2), pages 94-115.
    10. International Monetary Fund, 2011. "Macroprudential Policy: What Instruments and How to Use them? Lessons From Country Experiences," IMF Working Papers 2011/238, International Monetary Fund.
    11. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    12. Matteo Ciccarelli & Angela Maddaloni & Jose Luis Peydro, 2015. "Trusting the Bankers: A New Look at the Credit Channel of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 979-1002, October.
    13. Akinci, Ozge & Olmstead-Rumsey, Jane, 2018. "How effective are macroprudential policies? An empirical investigation," Journal of Financial Intermediation, Elsevier, vol. 33(C), pages 33-57.
    14. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
    15. Paolo Angelini & Stefano Neri & Fabio Panetta, 2014. "The Interaction between Capital Requirements and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(6), pages 1073-1112, September.
    16. Zohair Alam & Mr. Adrian Alter & Jesse Eiseman & Mr. Gaston Gelos & Mr. Heedon Kang & Mr. Machiko Narita & Erlend Nier & Naixi Wang, 2019. "Digging Deeper--Evidence on the Effects of Macroprudential Policies from a New Database," IMF Working Papers 2019/066, International Monetary Fund.
    17. Coibion, Olivier & Gorodnichenko, Yuriy & Kueng, Lorenz & Silvia, John, 2017. "Innocent Bystanders? Monetary policy and inequality," Journal of Monetary Economics, Elsevier, vol. 88(C), pages 70-89.
    18. Robert E. Hall, 2011. "The Long Slump," American Economic Review, American Economic Association, vol. 101(2), pages 431-469, April.
    19. Claudio Borio & Ilhyock Shim, 2007. "What can (macro-)prudential policy do to support monetary policy?," BIS Working Papers 242, Bank for International Settlements.
    20. Andrew Goodman-Bacon, 2018. "Difference-in-Differences with Variation in Treatment Timing," NBER Working Papers 25018, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Malovaná, Simona & Hodula, Martin & Gric, Zuzana & Bajzík, Josef, 2023. "Macroprudential policy in central banks: Integrated or separate? Survey among academics and central bankers," Journal of Financial Stability, Elsevier, vol. 65(C).
    2. Garcia Revelo, José David & Lucotte, Yannick & Pradines-Jobet, Florian, 2020. "Macroprudential and monetary policies: The need to dance the Tango in harmony," Journal of International Money and Finance, Elsevier, vol. 108(C).
    3. Jose David GARCIA REVELO & Yannick LUCOTTE & Florian PRADINES-JOBET, 2019. "Macroprudential and Monetary Policies : The Need to Dance the Tango in Harmony," LEO Working Papers / DR LEO 2691, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    4. Andrea Ferrero & Richard Harrison & Benjamin Nelson, 2024. "House Price Dynamics, Optimal LTV Limits and the Liquidity Trap," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(2), pages 940-971.
    5. Vasco J. Gabriel & Ioannis Lazopoulos & Diana Lima, 2023. "Institutional Arrangements and Inflation Bias: A Dynamic Heterogeneous Panel Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(1), pages 43-76, February.
    6. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    7. Elien Meuleman & Rudi Vander Vennet, 2022. "Macroprudential Policy, Monetary Policy, and Euro Zone Bank Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 18(4), pages 1-52, October.
    8. Coman, Andra & Lloyd, Simon P., 2022. "In the face of spillovers: Prudential policies in emerging economies," Journal of International Money and Finance, Elsevier, vol. 122(C).
    9. Yang, Jin Young & Suh, Hyunduk, 2023. "Heterogeneous effects of macroprudential policies on firm leverage and value," International Review of Financial Analysis, Elsevier, vol. 86(C).
    10. Snyder, Tricia Coxwell & Vale, Sofia, 2022. "House prices and household credit in the Eurozone: A single monetary policy with dissonant transmission mechanisms," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 243-256.
    11. André Kallåk Anundsen & Ragnar Nymoen, 2015. "Did US Consumers 'Save for a Rainy Day' Before the Great Recession?," CESifo Working Paper Series 5347, CESifo.
    12. Luca Fornaro, 2018. "International Debt Deleveraging," Journal of the European Economic Association, European Economic Association, vol. 16(5), pages 1394-1432.
    13. Carreras, Oriol & Davis, E. Philip & Piggott, Rebecca, 2018. "Assessing macroprudential tools in OECD countries within a cointegration framework," Journal of Financial Stability, Elsevier, vol. 37(C), pages 112-130.
    14. Zoë Venter, 2022. "Macroprudential policy under uncertainty," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(2), pages 161-209, May.
    15. Matthieu Darracq Paries, 2018. "Financial frictions and monetary policy conduct," Erudite Ph.D Dissertations, Erudite, number ph18-01 edited by Ferhat Mihoubi.
    16. Andre Teixeira & Zoe Venter, 2022. "Macroprudential Policy and Aggregate Demand," Working Papers 2022.04, International Network for Economic Research - INFER.
    17. Kim, Soyoung & Mehrotra, Aaron, 2022. "Examining macroprudential policy and its macroeconomic effects – Some new evidence," Journal of International Money and Finance, Elsevier, vol. 128(C).
    18. Coman, Andra, 2023. "Monetary policy spillovers and the role of prudential policies in the European Union," Working Paper Series 2854, European Central Bank.
    19. Hosan, Shahadat & Rahman, Md Matiar & Karmaker, Shamal Chandra & Saha, Bidyut Baran, 2023. "Energy subsidies and energy technology innovation: Policies for polygeneration systems diffusion," Energy, Elsevier, vol. 267(C).
    20. Matthew Rognlie & Andrei Shleifer & Alp Simsek, 2018. "Investment Hangover and the Great Recession," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(2), pages 113-153, April.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ise:remwps:wp01812021. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sandra Araújo (email available below). General contact details of provider: https://rem.rc.iseg.ulisboa.pt/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.