Bank regulations and surges and stops in credit: panel evidence
Allbwn ymchwil: Cyfraniad at gyfnodolyn › Erthygl › adolygiad gan gymheiriaid
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Yn: Journal of Financial Stability, Cyfrol 67, 101134, 08.2023.
Allbwn ymchwil: Cyfraniad at gyfnodolyn › Erthygl › adolygiad gan gymheiriaid
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TY - JOUR
T1 - Bank regulations and surges and stops in credit: panel evidence
AU - Thornton, John
AU - Vasilakis, Chrysovalantis
PY - 2023/8
Y1 - 2023/8
N2 - Prudential bank regulation complicates monetary policy because it has cyclical effects on the growth of bank credit, which can be a channel through which monetary policy is transmitted to the economy. Employing a panel of 36 advanced and developing countries for the period 1973-2015, we find that changes in regulation have been procyclical with respect to credit surges and counter-cyclical with respect to credit stops. As a result, monetary policy risks being too loose over the credit cycle. The economic effects of prudential regulation on credit have been meaningful given the large-scale bank liberalizations undertaken by many countries. The result is robust to dealing with a wide range of sensitivity tests and endogeneity concerns. In designing regulations, policymakers need to consider transmission mechanisms through which they might affect the real economy and undermine the goals of monetary policy.
AB - Prudential bank regulation complicates monetary policy because it has cyclical effects on the growth of bank credit, which can be a channel through which monetary policy is transmitted to the economy. Employing a panel of 36 advanced and developing countries for the period 1973-2015, we find that changes in regulation have been procyclical with respect to credit surges and counter-cyclical with respect to credit stops. As a result, monetary policy risks being too loose over the credit cycle. The economic effects of prudential regulation on credit have been meaningful given the large-scale bank liberalizations undertaken by many countries. The result is robust to dealing with a wide range of sensitivity tests and endogeneity concerns. In designing regulations, policymakers need to consider transmission mechanisms through which they might affect the real economy and undermine the goals of monetary policy.
U2 - 10.1016/j.jfs.2023.101134
DO - 10.1016/j.jfs.2023.101134
M3 - Article
VL - 67
JO - Journal of Financial Stability
JF - Journal of Financial Stability
SN - 1572-3089
M1 - 101134
ER -