Institute for Macroeconomics and Econometrics
University of Bonn
Kaiserplatz, 7-9 4th floor
53113, Bonn, Germany
Institutional Affiliation: University of Bonn
NBER Working Papers and Publications
|September 2018||The Costs of Macroprudential Policy|
with Moritz Schularick, Ilhyock Shim: w24989
Central banks increasingly rely on macroprudential measures to manage the financial cycle. However, the effects of such policies on the core objectives of monetary policy to stabilise output and inflation are largely unknown. In this paper, we quantify the effects of changes in maximum loan-to-value (LTV) ratios on output and inflation. We rely on a narrative identification approach based on detailed reading of policy-makers’ objectives when implementing the measures. We find that over a four year horizon, a 10 percentage point decrease in the maximum LTV ratio leads to a 1.1% reduction in output. As a rule of thumb, the impact of a 10 percentage point LTV tightening can be viewed as roughly comparable to that of a 25 basis point increase in the policy rate. However, the effects are imprec...
Published: Björn Richter & Moritz Schularick & Ilhyock Shim, 2019. "The costs of macroprudential policy," Journal of International Economics, .
|June 2018||The Costs of Macroprudential Policy|
with Moritz Schularick, Ilhyock Shim
in NBER International Seminar on Macroeconomics 2018, Jordi Galí and Kenneth West, organizers
|March 2017||Bank Capital Redux: Solvency, Liquidity, and Crisis|
with Òscar Jordà, Moritz Schularick, Alan M. Taylor: w23287
Higher capital ratios are unlikely to prevent a financial crisis. This is empirically true both for the entire history of advanced economies between 1870 and 2013 and for the post-WW2 period, and holds both within and between countries. We reach this startling conclusion using newly collected data on the liability side of banks’ balance sheets in 17 countries. A solvency indicator, the capital ratio has no value as a crisis predictor; but we find that liquidity indicators such as the loan-to-deposit ratio and the share of non-deposit funding do signal financial fragility, although they add little predictive power relative to that of credit growth on the asset side of the balance sheet. However, higher capital buffers have social benefits in terms of macro-stability: recoveries from financi...