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Europe > Ireland

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Cover IMF Working Papers
Effectiveness and Channels of Macroprudential Instruments: Lessons from the Euro Area
Mr. Thierry Tressel
and
Ms. Yuanyan S Zhang
The crisis has highlighted the importance of setting up macro-prudential oversight frameworks, having effective macro-prudential instruments in place to be called upon to mitigate growing financial imbalances as needed. We develop a new approach using the euro area Bank Lending Survey to assess the effectiveness of macro-prudential policies in containing credit growth and house price appreciation in mortgage markets. We find instruments targeting the cost of bank capital most effective in slowing down mortgage credit growth, and that the impact is transmitted mainly through price margins, the same banking channel as monetary policy. Limits on loan-to-value ratios are also effective, especially when monetary policy is excessively loose.
Keywords:
WP; lending standard; mortgage loan; cost of funds; house price appreciation; macroprudential policy; LTV ratios; capital requirement; mortage; bank lending; credit growth; lending survey; liquidity position; Mortgages; Housing prices; Credit; Estimation techniques; Financial statements; Global
Cover IMF Working Papers
Steady as She Goes—Estimating Potential Output During Financial “Booms and Busts”
Mr. Helge Berger
,
Mr. Thomas Dowling
,
Mr. Sergi Lanau
,
Mr. Mico Mrkaic
,
Mr. Pau Rabanal
, and
Marzie Taheri Sanjani
Potential output—in the sense of the GDP level or path an economy can sustain over the medium term—is a crucial benchmark for policymakers. However, it is difficult to estimate when financial “booms and busts” are driving the real economy. This paper uses a simple multivariate filtering approach to illustrate the role financial variables play in driving potential or sustainable output. The results suggest that it moves more steadily during financial “boom and bust” periods than implied by conventional HP filter estimates, which tend to more closely follow actual GDP. A two-region, multisector New Keynesian DSGE model with financial frictions sheds light on the economic forces that could be behind the results obtained from the filter. This has important implications for policymakers.
Keywords:
WP; MVF output gap; boom and bust; Spain output gaps estimate; house price; MVF-implied output gap; Spain output gaps from a MVF Model; Potential output; Output gap; Credit; housing price movement; Housing prices; Financial frictions; Global