Macroprudential Policy and Bank Systemic Risk: Does Inflation Targeting Matter?

This paper investigates macroprudential policy effects on bank systemic risk and the role of inflation targeting in such effects. Using bank-level data for 45 countries comprising various monetary and exchange rate regimes, our regime-dependent dynamic panel regression results point to complementarities between monetary and macroprudential policies. We find that the tightening of most macroprudential tools-including DSTI and LTV limits, and capital requirements-reduces bank systemic risk further under inflation targeting. Our findings lend credence to the view that inflation targeting strengthens macroprudential policy roles in mitigating financial stability risks