In the face of spillovers: Macroprudential policies in the European Union
Author: Andra Coman (Goethe University, ECB)
Title: In the face of spillovers: Macroprudential policies in the European Union
Abstract: This paper examines which macroprudential policies can help to reduce the macro-financial spillover effects of foreign monetary policy for all 28 EU countries. Using local projection methods, preliminary findings show that EU countries with tighter macroprudential policies face significantly smaller, and less negative, spillovers to credit and house prices from US, UK and EA monetary policy tightening shocks. Capital buffers and limits to credit growth appear to be particularly effective macroprudential measures at mitigating the spillover effects of US monetary policy, while capital requirements and lending standards prove effective in mitigating spillovers effects of UK monetary policy. Preliminary findings indicate that domestic macroprudential policies can dampen EU countries exposure to foreign monetary policy and the associated global financial cycle, suggesting they may be a useful tool in the face of international macroeconomic policy trade-offs.