Tightening and Loosening of Macroprudential Policy, Its Effects on Credit Growth and Implications for the COVID-19 Crisis

In this study, we analyze the effects of macroprudential measures on bank lending in European Union. We develop several dedicated policy indices reflecting different actions taken by authorities individual member countries, with aim to affect credit activity national banking sectors. our empirical model, measure responsiveness gross loans banks selected indices, taking into account a set level and macroeconomic control variables. use Fitch Connect dataset financial statements for 3,434 18,616 observations data provided World Bank IMF statistics covering period between 2000 2017. Information instruments is from new database, MaPPED, gathered published Central Bank, where were able extract information both timing direction instruments. Our findings show that can be used effectively regulatory modulation banks, some fluctuations effectiveness through business cycles. Therefore, loosening cycles, are found strongly positively associated lending. On other side, tightening have downward effect lending, while these less pronounced. These results great importance current crisis arising impact COVID-19, as policymakers trying support economy easing constraints ensure real sector.