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Bank of Japan : (Research Paper) Impact of Macroprudential Policy Measures on Economic Dynamics

02/20/2013 | 02:28am US/Eastern
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: Simulation Using a Financial Macro-econometric Model

February 20, 2013
Hiroshi Kawata*
Yoshiyuki Kurachi**
Koji Nakamura***
Yuki Teranishi****

Abstract

This paper uses a financial macro-econometric model to compare and analyze the impact of macroprudential policy measures -- a credit growth restriction, loan-to-value and debt-to-income regulations, and a time-varying capital requirement -- on the economic dynamics through the financial cycle with the asset price bubble. Our analysis shows that although these macroprudential policy measures dampen economic volatility, it is possible that they reduce average economic growth, and the effects on the economic dynamics differ widely among macroprudential policy measures. In addition, the policy effects are changed dramatically by lags in recognizing the state of the economy. Our results also suggest that macroprudential policy measures can help contribute to more stable financial intermediation by raising the resilience of the financial system against risks.

In the course of writing this paper, we benefited from valuable comments offered by participants at seminars held by the ECB, BOE, IMF, FRB, and OFR and in the Research Institute for Economics and Business Administration - Kobe University workshop, and by Bank of Japan staff. We would like to express our deep appreciation for the comments. Any errors in this paper are naturally those of the authors. The views expressed here are those of the authors and should not be ascribed to the Bank of Japan or its Financial System and Bank Examination Department.

* Financial System and Bank Examination Department
E-mail : hiroshi.kawata@boj.or.jp
** Financial System and Bank Examination Department
E-mail : yoshiyuki.kurachi@boj.or.jp
*** Financial System and Bank Examination Department
E-mail : kouji.nakamura@boj.or.jp
**** Financial System and Bank Examination Department
E-mail : yuuki.teranishi@boj.or.jp
Notice

Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (post.prd8@boj.or.jp) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.

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