Financial Development and the Effectiveness of Macroprudential Measures

We analyse how the effectiveness of price-based and quantity-based macroprudential measures vary by the level of financial development, using panel data for 37 advanced and emerging market economies over 1996–2011. First, we find that quantity-based measures effectively smooth the variations in total credit growth but price-based measures do not. We then show that at almost all levels of financial development, quantity-based measures significantly moderate credit growth, while price-based measures are effective only when the level of financial development is above a threshold level above the median. Our results suggest that policymakers should take the level of financial development into account when they choose macroprudential tools.Full publication: "http://ssrn.com/abstract=2844203" Macroprudential Policy