ECB paper finds cost of macro-prudential policies may outweigh benefits
A working paper published yesterday by the European Central Bank (ECB) models the effect of macro-prudential policies, finding that in some situations their use may not be good for an economy.
In Bubbles, Bank Credit and Macroprudential Policies, Alexis Derviz tests the effect of increasing capital charges as loan-to-value ratios rise. The paper finds that these polices succeed in reducing losses given default and "marginally alleviate" the impact of a bubble on the real economy.
However, the
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