Interaction of macro-management policies to reduce lending growth
Abstract
This paper examines whether capital flow management (CFM) and monetary policies effectively reduce lending growth in emerging market economies (EMEs) in the presence of conventional and unconventional monetary policy actions undertaken by advanced economies. We apply a dynamic panel model with fixed effects to a sample of 24 emerging market economies for 2000–2021 using quarterly data and more continuous variables than in other studies rather than limiting the variability using proxies. Capital controls and macroprudential regulation, as CFM policy tools, moderate lending growth. This effect is particularly shown in countries with tighter monetary conditions. Our main findings highlight the useful role of coordinating CFM and monetary policies. This role stands for both fixed and flexible exchange rate regimes. Lastly, we find capital flow management and monetary policies manage to control lending in normal periods, but their coordination is less effective during crises and high volatility periods.
First published online 07 November 2023
Keyword : capital flows management, monetary policy, lending growth, interaction
How to Cite
Zehri, C., Iben Ammar, L. S., & Zehri, F. (2023). Interaction of macro-management policies to reduce lending growth. Technological and Economic Development of Economy, 29(6), 1807–1829. https://doi.org/10.3846/tede.2023.20164
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Dell’Ariccia, G., Igan, D. O., Laeven, L., Tong, H., Bakker, B. B., Vandenbussche, J., & Blanchard, O. J. (2012). Policies for macrofinancial stability: How to deal with credit booms (International Monetary Fund Staff Discussion Notes 2012(006)).
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Fernández, A., Klein, M. W., Rebucci, A., Schindler, M., & Uribe, M. (2016). Capital control measures: A new dataset. IMF Economic Review, 64(3), 548–574. https://doi.org/10.1057/imfer.2016.11
Forbes, K., Reinhardt, D., & Wieladek, T. (2017). The spillovers, interactions, and (un) intended consequences of monetary and regulatory policies. Journal of Monetary Economics, 85, 1–22. https://doi.org/10.1016/j.jmoneco.2016.10.008
FSB-IMF-BIS. (2011, October 27). Macroprudential policy tools and frameworks. Update to G20 Finance Ministers and Central Bank Governors.
Gambacorta, L., & Murcia, A. (2020). The impact of macroprudential policies in Latin America: An empirical analysis using credit registry data. Journal of Financial Intermediation, 42, Article 100828. https://doi.org/10.1016/j.jfi.2019.04.004
Greenwood-Nimmo, M., & Tarassow, A. (2016). Monetary shocks, macroprudential shocks and financial stability. Economic Modelling, 56, 11–24. https://doi.org/10.1016/j.econmod.2016.03.003
Hofmann, B., & Bogdanova, B. (2012). Taylor rules and monetary policy: A global “Great Deviation”? BIS Quarterly Review, (September), 37–49.
Hume, M., & Sentance, A. (2009). The global credit boom: Challenges for macroeconomics and policy. Journal of International Money and Finance, 28(8), 1426–1461. https://doi.org/10.1016/j.jimonfin.2009.08.009
Ilzetzki, E., Reinhart, C. M., & Rogoff, K. S. (2019). Exchange arrangements entering the twenty-first century: Which anchor will hold? The Quarterly Journal of Economics, 134(2), 599–646. https://doi.org/10.1093/qje/qjy033
Kim, J., Kim, S., & Mehrotra, A. (2019). Macroprudential policy in Asia. Journal of Asian Economics, 65, Article 101149. https://doi.org/10.1016/j.asieco.2019.101149
Laeven, L., & Valencia, F. (2020). Systemic banking crises database II. IMF Economic Review, 68(2), 307–361. https://doi.org/10.1057/s41308-020-00107-3
Madeira, C. (2022). The evolution of macroprudential policy use in Chile, Latin America and the OECD. Journal of Bank Regulation. https://doi.org/10.1057/s41261-022-00202-7
Nakatani, R. (2020). Macroprudential policy and the probability of a banking crisis. Journal of Policy Modeling, 42(6), 1169–1186. https://doi.org/10.1016/j.jpolmod.2020.05.007
Nier, E. W., & Kang, H. (2016). Monetary and macroprudential policies – exploring interactions (BIS Paper 86e).
Nier, E., Olafsson, T. T., & Rollinson, Y. G. (2020). Exchange rates and domestic credit – can macroprudential policy reduce the link? (IMF Working Paper No. 20/187). https://doi.org/10.5089/9781513556550.001
Pasricha, G. K., Falagiarda, M., Bijsterbosch, M., & Aizenman, J. (2018). Domestic and multilateral effects of capital controls in emerging markets. Journal of International Economics, 115, 48–58. https://doi.org/10.1016/j.jinteco.2018.08.005
Siranova, M., & Zelenak, K. (2023). Every crisis does matter: Comparing the databases of financial crisis events. Review of International Economics, 31(2), 652–686. https://doi.org/10.1111/roie.12640
Zehri, C. (2020). Capital restrictions policies, currency appreciation and foreign debts. Montenegrin Journal of Economics, 16(3), 149–159. https://doi.org/10.14254/1800-5845/2020.16-3.12
Zehri, C. (2023). Attenuating international financial shocks: the role of capital controls. International Journal of Emerging Markets, 18(4), 868–885. https://doi.org/10.1108/IJOEM-12-2020-1540
Aiyar, S., Calomiris, C. W., & Wieladek, T. (2014). Does macro‐prudential regulation leak? Evidence from a UK policy experiment. Journal of Money, Credit and Banking, 46(s1), 181–214. https://doi.org/10.1111/jmcb.12086
Aizenman, J., Chinn, M. D., & Ito, H. (2013). The “impossible trinity” hypothesis in an era of global imbalances: Measurement and testing. Review of International Economics, 21(3), 447–458. https://doi.org/10.1111/roie.12047
Akinci, O., & Olmstead-Rumsey, J. (2018). How effective are macroprudential policies? An empirical investigation. Journal of Financial Intermediation, 33, 33–57. https://doi.org/10.1016/j.jfi.2017.04.001
Alam, Z., Alter, M. A., Eiseman, J., Gelos, M. R., Kang, M. H., Narita, M. M., Nier, E., & Wang, N. (2019). Digging deeper – Evidence on the effects of macroprudential policies from a new database. International Monetary Fund. https://doi.org/10.5089/9781498302708.001
Andrikopoulos, A., Chen, Z., Chortareas, G., & Li, K. (2023). Global economic policy Uncertainty, gross capital Inflows, and the mitigating role of Macroprudential policies. Journal of International Money and Finance, 131, Article 102793. https://doi.org/10.1016/j.jimonfin.2022.102793
Angelini, P., Neri, S., & Panetta, F. (2011). Monetary and macroprudential policies (Working Paper No. 801). Bank of Italy Temi di Discussione. https://doi.org/10.2139/ssrn.1832349
Antipa, P., Mengus, E., & Mojon, B. (2010). Would macro-prudential policies have prevented the great recession? (mimeo). Banque de France.
Arena, M. M., Bouza, S., Dabla-Norris, M. E., Gerling, M. K., & Njie, L. (2015). Credit booms and macroeconomic dynamics: Stylized facts and lessons for low-income countries. International Monetary Fund. https://doi.org/10.5089/9781484356869.001
Bacchetta, P., Cordonier, R., & Merrouche, O. (2023). The rise in foreign currency bonds: The role of US monetary policy and capital controls. Journal of International Economics, 140, Article 103709. https://doi.org/10.1016/j.jinteco.2022.103709
Ben Zeev, N. (2017). Capital controls as shock absorbers. Journal of International Economics, 109, 43–67. https://doi.org/10.1016/j.jinteco.2017.08.004
Bergant, K., Grigoli, M. F., Hansen, M. N. J. H., & Sandri, M. D. (2020). Dampening global financial shocks: can macroprudential regulation help (more than capital controls)? International Monetary Fund. https://doi.org/10.2139/ssrn.3654357
Bhattarai, S., Chatterjee, A., & Park, W. Y. (2021). Effects of US quantitative easing on emerging market economies. Journal of Economic Dynamics and Control, 122, Article 104031. https://doi.org/10.1016/j.jedc.2020.104031
Bussière, M., Cao, J., de Haan, J., Hills, R., Lloyd, S., Meunier, B., Pedrono, J., Reinhardt, D., Sinha, S., Sowerbutts, R., & Styrin, K. (2021). The interaction between macroprudential policy and monetary policy: Overview. Review of International Economics, 29(1), 1–19. https://doi.org/10.1111/roie.12505
Carrillo, J. A., Mendoza, E. G., Nuguer, V., & Roldán-Peña, J. (2021). Tight money-tight credit: Coordination failure in the conduct of monetary and financial policies. American Economic Journal: Macroeconomics, 13(3), 37–73. https://doi.org/10.1257/mac.20180321
Chari, A., Dilts-Stedman, K., & Forbes, K. (2022). Spillovers at the extremes: The macroprudential stance and vulnerability to the global financial cycle. Journal of International Economics, 136, Article 103582. https://doi.org/10.3386/w29670
Chinn, M. D., & Ito, H. (2008). A new measure of financial openness. Journal of Comparative Policy Analysis, 10(3), 309–322. https://doi.org/10.1080/13876980802231123
Davis, J. S., & Presno, I. (2017). Capital controls and monetary policy autonomy in a small open economy. Journal of Monetary Economics, 85, 114–130. https://doi.org/10.1016/j.jmoneco.2016.11.008
Dell’Ariccia, G., Igan, D. O., Laeven, L., Tong, H., Bakker, B. B., Vandenbussche, J., & Blanchard, O. J. (2012). Policies for macrofinancial stability: How to deal with credit booms (International Monetary Fund Staff Discussion Notes 2012(006)).
Eckert, C., & Hohberger, J. (2023). Addressing endogeneity without instrumental variables: An evaluation of the gaussian copula approach for management research. Journal of Management, 49(4), 1460–1495. https://doi.org/10.1177/01492063221085913
Fernández, A., Klein, M. W., Rebucci, A., Schindler, M., & Uribe, M. (2016). Capital control measures: A new dataset. IMF Economic Review, 64(3), 548–574. https://doi.org/10.1057/imfer.2016.11
Forbes, K., Reinhardt, D., & Wieladek, T. (2017). The spillovers, interactions, and (un) intended consequences of monetary and regulatory policies. Journal of Monetary Economics, 85, 1–22. https://doi.org/10.1016/j.jmoneco.2016.10.008
FSB-IMF-BIS. (2011, October 27). Macroprudential policy tools and frameworks. Update to G20 Finance Ministers and Central Bank Governors.
Gambacorta, L., & Murcia, A. (2020). The impact of macroprudential policies in Latin America: An empirical analysis using credit registry data. Journal of Financial Intermediation, 42, Article 100828. https://doi.org/10.1016/j.jfi.2019.04.004
Greenwood-Nimmo, M., & Tarassow, A. (2016). Monetary shocks, macroprudential shocks and financial stability. Economic Modelling, 56, 11–24. https://doi.org/10.1016/j.econmod.2016.03.003
Hofmann, B., & Bogdanova, B. (2012). Taylor rules and monetary policy: A global “Great Deviation”? BIS Quarterly Review, (September), 37–49.
Hume, M., & Sentance, A. (2009). The global credit boom: Challenges for macroeconomics and policy. Journal of International Money and Finance, 28(8), 1426–1461. https://doi.org/10.1016/j.jimonfin.2009.08.009
Ilzetzki, E., Reinhart, C. M., & Rogoff, K. S. (2019). Exchange arrangements entering the twenty-first century: Which anchor will hold? The Quarterly Journal of Economics, 134(2), 599–646. https://doi.org/10.1093/qje/qjy033
Kim, J., Kim, S., & Mehrotra, A. (2019). Macroprudential policy in Asia. Journal of Asian Economics, 65, Article 101149. https://doi.org/10.1016/j.asieco.2019.101149
Laeven, L., & Valencia, F. (2020). Systemic banking crises database II. IMF Economic Review, 68(2), 307–361. https://doi.org/10.1057/s41308-020-00107-3
Madeira, C. (2022). The evolution of macroprudential policy use in Chile, Latin America and the OECD. Journal of Bank Regulation. https://doi.org/10.1057/s41261-022-00202-7
Nakatani, R. (2020). Macroprudential policy and the probability of a banking crisis. Journal of Policy Modeling, 42(6), 1169–1186. https://doi.org/10.1016/j.jpolmod.2020.05.007
Nier, E. W., & Kang, H. (2016). Monetary and macroprudential policies – exploring interactions (BIS Paper 86e).
Nier, E., Olafsson, T. T., & Rollinson, Y. G. (2020). Exchange rates and domestic credit – can macroprudential policy reduce the link? (IMF Working Paper No. 20/187). https://doi.org/10.5089/9781513556550.001
Pasricha, G. K., Falagiarda, M., Bijsterbosch, M., & Aizenman, J. (2018). Domestic and multilateral effects of capital controls in emerging markets. Journal of International Economics, 115, 48–58. https://doi.org/10.1016/j.jinteco.2018.08.005
Siranova, M., & Zelenak, K. (2023). Every crisis does matter: Comparing the databases of financial crisis events. Review of International Economics, 31(2), 652–686. https://doi.org/10.1111/roie.12640
Zehri, C. (2020). Capital restrictions policies, currency appreciation and foreign debts. Montenegrin Journal of Economics, 16(3), 149–159. https://doi.org/10.14254/1800-5845/2020.16-3.12
Zehri, C. (2023). Attenuating international financial shocks: the role of capital controls. International Journal of Emerging Markets, 18(4), 868–885. https://doi.org/10.1108/IJOEM-12-2020-1540