Macroprudential policies, economic growth and banking crises

Using a sample covering emerging market and advanced economies, we assess the impact of macroprudential policies on financial stability. Our empirical setup is designed to account for the potential direct and indirect effects that macroprudential policies can have on banking crises. We find that while macroprudential policies (MPPs) exert a direct stabilizing effect, they also have an indirect destabilizing effect, which works through the depressing of economic growth. It turns out that mitigating effects of MPPs on the likelihood of banking crises is more pronounced in emerging market economies relative to advanced economies.