Description

The crisis has highlighted the importance of setting up macro-prudential oversight
 frameworks, having effective macro-prudential instruments in place to be called upon to
 mitigate growing financial imbalances as needed. We develop a new approach using the euro
 area Bank Lending Survey to assess the effectiveness of macro-prudential policies in
 containing credit growth and house price appreciation in mortgage markets. We find
 instruments targeting the cost of bank capital most effective in slowing down mortgage credit
 growth, and that the impact is transmitted mainly through price margins, the same banking
 channel as monetary policy. Limits on loan-to-value ratios are also effective, especially when
 monetary policy is excessively loose.

More publications in this series: Working Papers

More publications by: Thierry Tressel ; Yuanyan Sophia Zhang