Search Results (9)

This paper investigates the determinants and transmission channels underlying the synchronization between financial and business cycles across European Union (EU) member states. For the empirical approach, we combine frequency-domain filtering techniques with spillover index analysis to track cross-country macro-financial interlinkages. We measure financial cycle correlations and spillovers in terms of common exposures to trade linkages, overlapping systemic risk episodes, and bilateral financial claims. An important finding is that financial and business cycles tend to move together, largely due to shared macro-financial conditions and systemic stress episodes. While the data reveal strong co-movement between these cycles, the analysis does not imply a specific direction of causality. In particular, it remains possible that shifts in financial conditions can amplify or even precede business-cycle fluctuations, as seen during major crises. The focus of this study is, therefore, on the interdependence and synchronization of these cycles rather than on causal sequencing. The analysis combines complementary filtering and variance-decomposition methods to quantify the interdependencies shaping EU financial stability, providing a basis for enhanced macroprudential policy coordination. The policy implications for macroprudential authorities entail taking into account cross-border effects and spillovers when implementing instruments for taming the financial cycle. Full article

Macroprudential policy, as an important instrument for counter-cyclical regulation, plays a crucial role in enhancing urban economic resilience. Based on this, this paper empirically examines the influence of macroprudential policy on urban economic resilience and its optimization paths using data from 284 prefecture-level cities in China from 2011 to 2023. The research findings indicate that macroprudential policy significantly enhances urban economic resilience, and the conclusion still holds after various robustness tests. Further analysis reveals that the main transmission channels include stimulating digital finance development, promoting industrial structure upgrading, and deepening regional integration. Notably, this effect is particularly pronounced in smart cities, big data pilot zones, and cities with less fiscal pressure. Additionally, the test results of spatial spillover effects show that the direct effect of macroprudential policy on the economic resilience of cities is relatively significant, while the indirect effect is relatively weak. Finally, empirical tests have proved that the improvement of urban economic resilience can further drive regional innovation capability. This study provides empirical support and theoretical references for improving China’s “dual-pillar” regulatory framework and enhancing urban economic resilience. Full article

Population aging poses significant challenges to the sustainability of pension systems. This study presents an integrated methodological approach that uniquely combines actuarial life-cycle modeling with agent-based simulation to assess the potential of Reverse Mortgage Loans (RMLs) as a dual lever for enhancing retiree welfare and supporting pension system resilience under demographic and financial uncertainty. We explore Reverse Mortgage Loans (RMLs) as a potential financial instrument to support retirees while alleviating pressure on public pensions. Unlike prior research that treats individual decisions or policy outcomes in isolation, our hybrid model explicitly captures feedback loops between household-level behavior and system-wide financial stability. To test our hypothesis that RMLs can improve individual consumption outcomes and bolster systemic solvency, we develop a hybrid model combining actuarial techniques and agent-based simulations, incorporating stochastic housing prices, longevity risk, regulatory capital requirements, and demographic shifts. This dual-framework enables a structured investigation of how micro-level financial decisions propagate through market dynamics, influencing solvency, pricing, and adoption trends. Our central hypothesis is that reverse mortgages, when actuarially calibrated and macroprudentially regulated, enhance individual financial well-being while preserving long-run solvency at the system level. Simulation results indicate that RMLs can improve consumption smoothing, raise expected utility for retirees, and contribute to long-term fiscal sustainability. Moreover, we introduce a dynamic regulatory mechanism that adjusts capital buffers based on evolving market and demographic conditions, enhancing system resilience. Our simulation design supports multi-scenario testing of financial robustness and policy outcomes, providing a transparent tool for stress-testing RML adoption at scale. These findings suggest that, when well-regulated, RMLs can serve as a viable supplement to traditional retirement financing. Rather than offering prescriptive guidance, this framework provides insights to policymakers, financial institutions, and regulators seeking to integrate RMLs into broader pension strategies. Full article

Housing prices have recently risen sharply in many countries, primarily linked to the global credit cycle. Although various factors play a role, the ability of developing countries to navigate this cycle and maintain autonomous monetary policies is crucial. This paper introduces a dynamic macroeconomic model featuring a housing production sector within an imperfect banking framework. It captures key housing and economic dynamics in advanced and emerging economies. The analysis shows domestic liquidity policies, such as bank capital requirements, reserve ratios, and currency devaluation, can stabilize investment and production. However, their effectiveness depends on foreign interest rates and liquidity. Stabilizing housing prices and risk-free bonds is more effective in high-interest environments, while foreign liquidity shocks have asymmetric impacts. They can boost or lower the effectiveness of domestic policy, depending on the country’s level of financial development. These findings have several policy implications. For example, foreign capital controls would be adequate in the short term but not in the long term. Instead, governments would try to promote the development of local financial markets. Controlling debt should be a target for macroprudential policy as well as promoting saving instruments other than real estate, especially during low interest rates. Full article

This study used the panel data from 15 emerging markets to examine the impact of restrictive macroprudential policies on income inequality from 2000–2019 using Bayesian panel vector autoregression and Bayesian panel dynamics generalised method of moments models. The chosen models are suitable for addressing multiple entity dynamics, accommodating a wide range of variables, handling dense parameterisation, and optimising formativeness and heterogeneous individual-specific factors. The empirical analysis utilised various macroprudential policy proxies and income inequality measures. The results show that when the central banks tighten systems using macroprudential policy instruments to sticker debt-to-income and financial instruments for lower-income borrowers (the bottom 40% of the income distribution), they promote income inequality in these countries while reducing income inequality for high-income borrowers (the high 1 percent of the income distribution). The impact of loan-to-value ratios was found to be insignificant in these countries. Fiscal policy through government expenditure and economic development reduces income inequality, while money supply and oil-price shocks exacerbate it. The study suggests implementing a progressive debt-to-income (DTI) ratio system in emerging markets to address income inequality among lower-income borrowers. This would adjust DTI thresholds based on income brackets, allowing lenient credit access for lower-income borrowers while maintaining stricter limits for higher-income borrowers. This would improve financial stability and reduce income disparities. Additionally, targeted financial literacy programs and a petroleum-linked basic income program could be implemented to distribute oil revenue to lower-income households. A monetary supply stabilisation fund could also be established to maintain financial stability and prevent excessive inflation. Full article

Banks are exposed to climate risks through stranded assets. This risk can be substantial in the banking sector, as it can spawn systemic risk. After the Great Recession, macro-prudential instruments effectively addressed systemic risk. However, climatic risks raise the research question of how feasible it is to address them by adopting macro-prudential instruments. The researchers, therefore, investigate how banks can respond to the risk posed by stranded assets through the framework of using macro-prudential instruments. A semi-systematic review of the related literature is carried out based on the researchers’ aim to evaluate theory evidence in the effectiveness of macro-prudential instruments in addressing climate-related risks. The adaptability of macro-prudential instruments to address climatic risks and, by implication, systemic risk is demonstrated in the findings. The researchers develop a framework constituting climate transparency disclosures, climate capital requirement ratio, climate capital conservation, carbon countercyclical buffer and macro-prudential climate stress tests to mitigate the effects of climate risks in banking. Full article

This study provides an empirical analysis of the two macroprudential instruments, namely the reserve option mechanism and the interest rate corridor, employed by the Central Bank of the Republic of Turkey in the aftermath of the global financial crisis. A nine-variable structural vector autoregressive model for Turkey is estimated with Bayesian techniques utilising data from October 2010 to May 2018. A set of timing, zero and sign restrictions are imposed to identify the reserve requirement and the interest rate shocks through the bank lending channel. The results reveal that the new policy frame is efficient in curbing the volatility in the exchange rates and in improving the current account balance. While the reserve requirements seem to be more effective on the current account and partly on the exchange rate, the interest rate fares better in controlling the price level. Full article

We used a time-series cross-section dataset to test several hypotheses pertaining to the role of macroprudential policy instruments in the management of the financial cycle in advanced open economies. The short-run effects are most significant for caps on loan to value and income (LTV and LTI) and risk weights (RW). The long-run coefficients of credit growth with respect to the indicators of amortisation requirements (Amort) and RW are also significant. The estimation results when house price growth is the dependent variable are consistent with these results. Our findings do not support that Basel III type countercyclical buffer (CCyB) has affected credit growth, and we suggest that the variable is mainly a control in our dataset. In that interpretation, it is interesting that the estimated coefficients of the other instruments are robust with respect to exclusion of CCyB from the empirical models. The main results are also robust to controls in the form of impulse indicator saturation (IIS), which we employed as a novel estimation method for macro panels. Full article

This paper provides a rationale for the macro-prudential regulation of insurance companies, where capital requirements increase in their contribution to systemic risk. In the absence of systemic risk, the formal model in this paper predicts that optimal regulation may be implemented by capital regulation (similar to that observed in practice, e.g., Solvency II ) and by actuarially fair technical reserve. However, these instruments are not sufficient when insurance companies are exposed to systemic risk: prudential regulation should also add a systemic component to capital requirements that is non-decreasing in the firm’s exposure to systemic risk. Implementing the optimal policy implies separating insurance firms into two categories according to their exposure to systemic risk: those with relatively low exposure should be eligible for bailouts, while those with high exposure should not benefit from public support if a systemic event occurs. Full article