The effects of macroprudential policies on credit growth

In this paper, we assess the effectiveness of macroprudential policies in controlling short- and long-term credit growth. Using a sample of 414 banks located in 61 countries, we document that macroprudential policies manifest a stabilizing effect in the short run, reducing credit growth, with borrower-targeted macroprudential policies being the most effective in taming credit developments. However, in the long-term tight macroprudential policies enhance credit growth. In this case, country-level analysis shows that financial institution-targeted macroprudential policy is more effective than the instruments that target borrowers, whereas at the bank-level the opposite is true. In addition, using a difference-in-difference approach, we emphasize that there is heterogeneity in the relationship among macroprudential policy and credit growth across different types of countries, banking systems, policy regimes and banks. Our findings stress the importance of macroprudential instruments in limiting excessive lending, most notably borrower-based tools.