Does monetary policy reinforce the effects of macroprudential policy?

• Název práce v češtině: Posiluje měnová politika účinky makroobezřetnostní politiky?
• Název v anglickém jazyce: Does monetary policy reinforce the effects of macroprudential policy?
• Klíčová slova: Makroobezřetnostní politika, Měnová politika, Růst úvěrů, Růst cen nemovitostí, Panelová data
• Klíčová slova anglicky: Macroprudential Policy, Monetary Policy, Credit Growth, House Price Growth, Panel Data
• Akademický rok vypsání: 2020/2021
• Typ práce: diplomová práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: doc. PhDr. Adam Geršl, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 08.06.2021
• Datum zadání: 08.06.2021
• Datum a čas obhajoby: 15.06.2022 09:00
• Místo konání obhajoby: Opletalova - Opletalova 26, O105, Opletalova - místn. č. 105
• Datum odevzdání elektronické podoby: 02.05.2022
• Datum proběhlé obhajoby: 15.06.2022
• Oponenti: Mgr. Dominika Ehrenbergerová, Ph.D.

Zásady pro vypracování

This thesis is going to contribute to the not so developed area of studies on the impact of macroprudential policies on housing prices, specifically on its individual and combined with monetary policies effects. The analysis will be focused on the possible reinforcement of macroprudential and monetary policies which is yet not very deeply explored. To my knowledge, the studies do not evaluate if there is a different interaction between the macroprudential and monetary policies in financial and business upturns and downturns. The recent studies have focused their discussion on the individual countries based on the data from credit registers. My study is going to be based on country-level data from CB’s databases aiming to describe the situation in a broader set of advanced and emerging economies. The results of my thesis will offer another point of view on the use of macroprudential and monetary policies and their impacts on the economy, these results could be interesting especially for policymakers and central bankers.

Seznam odborné literatury

AIYAR, Shekhar S.; CALOMIRIS, Charles W.; WIELADEK, Tomasz. How does credit supply respond to monetary policy and bank minimum capital requirements?. 2014.

ALTAVILLA, Carlo; LAEVEN, Luc; PEYDRÓ, José-Luis. Monetary and Macroprudential Policy Complementarities: evidence from European credit registers. 2020.

BENCHIMOL, Jonathan, et al. The Interaction Between Domestic Monetary Policy and Macroprudential Policy in Israel. Bank of Israel, 2021.

BRUNO, Valentina; SHIM, Ilhyock; SHIN, Hyun Song. Comparative assessment of macroprudential policies. Journal of Financial Stability, 2017, 28: 183-202.

CAO, Jin, et al. The interaction between macroprudential and monetary policies: The cases of Norway and Sweden. Review of International Economics, 2021, 29.1: 87-116.

GAMBACORTA, Leonardo; MURCIA, Andrés. The impact of macroprudential policies and their interaction with monetary policy: an empirical analysis using credit registry data. 2017.

KRIPPNER, Leo. A tractable framework for zero-lower-bound Gaussian term structure models. Australian National University, 2013.

MARTIN, Alberto; MENDICINO, Caterina; VAN DER GHOTE, Alejandro. On the interaction between monetary and macroprudential policies. 2021.

SCHULARICK, Moritz; TAYLOR, Alan M. Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870-2008. American Economic Review, 2012, 102.2: 1029-61.

VAN DER GHOTE, Alejandro. Interactions and coordination between monetary and macroprudential policies. American Economic Journal: Macroeconomics, 2021, 13.1: 1-34.

Předběžná náplň práce

The global financial crisis led to the development of banking regulation with macroprudential tools. The emphasis is among other on the financial stability risks connected with an excessive credit growth. The developments of regulation brought along theoretical research on finding the optimal combination of macroprudential and monetary policies in order to manage the business cycle and safeguard financial stability (Van der Ghote, 2019). As the growth of credit issued by the banks is a strong predictor of systemic financial crisis (Schularick and Taylor, 2012), the understanding of what impact has the macroprudential policies on monetary policy transmission via credit is crucial for the establishment of a financial stability.

As both macroprudential and monetary policy affect financial markets and economic activity, there are spillovers between them (Martin et al., 2021). In the situation when there is a effective management of the macroprudential policy, the Tinbergen principle applies. This principle says that monetary policy is able to focus on keeping inflation close to its target whereas macroprudential policy can focus on dealing with systemic risk. On the other hand, it is believed that in practice it is possible that the macroprudential framework is not yet fully effective.

There are few studies focusing on the interaction of monetary and macroprudential policy. The paper by Bruno et al. (2017) uses cross-country aggregate data on 12 countries from the Asia-Pacific region and focuses on the assessment whether the monetary and macroprudential policies are substitutes or complements. Altavilla et al. (2020) examines the data from European credit registers and finds the evidence that monetary policy easing increases bank lending and lending to riskier borrowers, moreover, their findings suggest that monetary and macroprudential policies work as complements. Last but not least, Gambarcorta and Murcia (2017) perform a meta-analysis of various studies that analyze macroprudential policies based on data from credit-registers for commercial loans in Latin America. The recent literature (Benchimol et al., 2021; Cao, 2021) uses bank-level data from one or two countries for their analyses.

1. Hypothesis #1: Macroprudential and monetary policy do reinforce each other’s effect.
2. Hypothesis #2: The effects of macroprudential and monetary policies are asymmetric in financial and business upturns and downturns.
3. Hypothesis #3: Effects of individual macroprudential policies are different for various macroprudential instruments.

In the thesis, the relationship between monetary and macroprudential policies and their individual and aggregate effect on credit growth and house prices is going to be estimated. The model will verify the effectiveness of macroprudential tools on the intermediate targets when the monetary policy pushes the economy in the same direction and in opposite one. The second type of models will estimate the effect of the monetary policy on the inflation or output gap, the analysis will be focused on whether the effects of monetary policy are stronger when the macroprudential policy is used in parallel. During the research, we will explore whether to use GMM or the fixed effects approach in order to be able to deal with endogeneity that may appear in the model. Moreover, we will estimate VAR models showing the effects of macroprudential and monetary policies.
The effect of macroprudential policy instruments will be included in the model in the form of an index based on the iMaPP database created by IMF. This index is based on the number of measures that are put in place at a given point of time. In the analysis, the macroprudential tools will be considered item by item as well. In order to capture the monetary rates in the ZLB period, we will use the CAB-GATSM approach introduced by Krippner (2013). The data source for our credit data are CB’s databases of individual countries. The main source of housing prices will be BIS database on residential property prices.
As mentioned before, the main data sources will be CB’s databases of the individual countries, BIS, IMF, and ECB databases. The models will be estimated for a sample of emerging and advanced countries. Since data for some countries may be available for a longer period than for other countries, the study will aim to use a data frame starting as early as possible in order to successfully capture booms and crisis that the economies have gone through in the past.