The impact of macroprudential policies on capital flows in CESEE

Eller, Markus and Hauzenberger, Niko and Huber, Florian and Schuberth, Helene and Vashold, Lukas (2021) The impact of macroprudential policies on capital flows in CESEE. The European Money and Finance Forum.

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Abstract

This policy brief explores to what extent macroprudential policies (MPPs) had an impact on capital flows in Central, Eastern and Southeastern Europe (CESEE) – a region that experienced a substantial boom-bust cycle in capital flows amid the global financial crisis (GFC) and where policymakers had been quite active in adopting MPPs already before the GFC. Our results suggest that tighter MPPs, measured by a newly constructed intensity-adjusted macroprudential policy index, curb not only private sector credit growth but also gross capital inflows in most of the countries analyzed. We provide evidence that the effects of MPPs are generally stronger in a low interest rate environment, which suggests that MPPs are more effective if conventional monetary policy is faced with constraints.

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