Macroprudential Policy and Bank Systemic Risk: Does Inflation Targeting Matter?
(2025) Emerging Markets Review — (2025)
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- Abstract
- This paper examines whether inflation targeting (IT) enhances the effectiveness of macroprudential policies in reducing banks’ contribution to systemic risk measured by SRISK. Using bank-level data for 47 countries, our regime-dependent panel regressions suggest that tools such as DSTI limits, the CCyB, conservation buffers, and leverage limits are relatively more effective under IT. Loan restrictions appear less effective, while loan-to-value (LTV) caps show impact only in post-GFC samples. Liquidity and reserve requirements reduce SRISK under IT in higher-frequency estimations. Our findings lend credence to the view that IT strengthens the role of macroprudential policy in mitigating financial stability risks.
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Citations
Mugrabi Otero, F., Belkhir, M., Naceur, S., Candelon, B., & Choi, W. G. (2025). Macroprudential Policy and Bank Systemic Risk: Does Inflation Targeting Matter? Emerging Markets Review. Accepted/in-press. https://doi.org/10.1016/j.ememar.2025.101397 (Original work published 2025)