Leaning Against the Wind: Macroprudential Policy in Asia

38 Pages Posted: 4 Mar 2014

See all articles by Longmei Zhang

Longmei Zhang

International Monetary Fund (IMF)

Edda Zoli

International Monetary Fund (IMF)

Date Written: February 2014

Abstract

In recent years, macroprudential policy has become an increasingly active policy area. Many countries have adopted it as a tool to safeguard financial stability, in particular to deal with the credit and asset price cycles driven by global capital flows. This paper reviews the use of key macroprudential instruments and capital flow measures in 13 Asian economies and 33 economies in other regions since 2000, and constructs various macroprudential policy indices, aggregating sub-indices on key instruments. Asian economies appear to have made greater use of macroprudential tools, especially housing-related measures, than their counterparts in other regions. The effects of macroprudential policy are then assessed through an event study, cross-country macro panel regressions and bank-level micro panel regressions. The analysis suggests that macroprudential policy and capital flow measures have helped curb housing price growth, equity flows, credit growth, and bank leverage. The instruments that have been particularly effective in this regard include loan-to-value ratio caps, housing tax measures, and foreign currency-related measures.

Keywords: Budgets, United States, United Kingdom, European Union, Business cycles, Capital, Labor markets, Production, Economic models, Constant Elasticity of Substitution, Fiscal Policy, Indeterminacy, Business Cycles., tax rates, taxation, budget constraint, factor shares, government budget constraint, government revenue, tax policy, perfect competition, fiscal authority, perfect substitutes, budget process, fiscal restraints, government budgets, fiscal discipline, return on capital, public debt, distortionary taxes, tax base, government spending

JEL Classification: G28, E58

Suggested Citation

Zhang, Longmei and Zoli, Edda, Leaning Against the Wind: Macroprudential Policy in Asia (February 2014). IMF Working Paper No. 14/22, Available at SSRN: https://ssrn.com/abstract=2404298

Longmei Zhang (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Edda Zoli

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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