The COVID-19 pandemic has caused dramatic loss of human life and major damage to the European economy, but thanks to an exceptionally strong policy response, potentially devastating outcomes have been avoided.
Dilyana Dimova, Ms. Piyabha Kongsamut, and Jérôme Vandenbussche
This paper presents a detailed account of the rich set of macroprudential measures taken in
four Southeastern European countries—Bulgaria, Croatia, Romania, and Serbia—during
their synchronized boom and bust cycles in 2003–12, and assesses their effectiveness. We
find that only strong measures helped contain domestic credit growth, the share of foreigncurrency-
denominated loans provided by the domestic banking sector, or the domestic
banking sector’s reliance on foreign borrowing during the boom years. We also find that
circumvention via direct external borrowing often fully offset the effectiveness of these
strict measures, and thatmeasures taken during the bust had no discernible impact. We
conclude that (i) proper calibration of macroprudential measures is of the essence; (ii) only
strong, broad-based macroprudential measures can contain credit booms; (iii) econometric
studies of macroprudential policy effectiveness should focus on measures rather than on
instruments (i.e. classes of measures) and in so doing allow for possible non-linear and
A mechanism is proposed that aims to reduce the risk of a banking sector liquidity crisis—which is a quintessentially systemic event and thus the object of macroprudential policy—and moderate the effects of a crisis should one occur. The instrument would give banks more incentive to build up buffers of systemically liquid assets as a proportion of their total liabilities, yet these buffers would be usable in times of stress. The modalities of the instrument are considered with a view to making it effective, efficient, and robust.
Mr. Jerome Vandenbussche, Ms. Ursula Vogel, and Ms. Enrica Detragiache
Several countries in Central, Eastern and Southeastern Europe used a rich set of prudential instruments in response to last decade’s credit and housing boom and bust cycles. We collect detailed information on these policy measures in a comprehensive database covering 16 countries at a quarterly frequency. We use this database to investigate whether the policy measures had an impact on housing price inflation. Our evidence suggests that some—but not all—measures did have an impact. These measures were changes in the minimum CAR and non-standard liquidity measures (marginal reserve requirements on foreign funding, marginal reserve requirements linked to credit growth).
This Selected Issues paper and Statistical Appendix examines the revenue and expenditure trends of the Croatia from a cross-country perspective and illustrates the medium-term fiscal outlook under two scenarios: one assumes gradual fiscal adjustment and structural reforms; the other assumes stronger fiscal adjustment and a more aggressive approach to structural reforms. The paper analyzes Croatia’s revenue structure to provide a perspective for the medium-term revenue policy. It also identifies the expenditure items that could be streamlined over the medium term, and presents alternative medium-term fiscal frameworks.
Mr. David William Harold Orsmond and Mr. Stanley Fischer
Israel’s post-stabilization experience of moderate inflation and eventual disinflation is compared with experiences in other countries. Lessons that emerge from an examination of international experiences indicate the importance of establishing early on credibility in the nominal anchor and a commitment to persevere with disinflation policies, achieving and maintaining a tight fiscal position, measures to reduce nominal rigidities, and widespread structural reform. Israel falls short on several criteria which explains why taming inflation in the post-stabilization period has been difficult. The paper concludes with a consideration of institutional arrangements that could sustain the current low inflation levels.