Finance: Research, Policy and Anecdotes

Micro-evidence on macroprudential policies

Meghana Ayyagari, Sole Martinez Peria and I have finally published a working paper version of our study on the effect of macroprudential policies on firms’ funding and investment/sales growth. An early version of this paper was supported by the Hong Kong office of the BIS and presented at the BNM-BIS conference on financial systems and the real economy in Kuala Lumpur two years ago. The new version, however, has added quite some additional results. Here is in a nutshell what we find: the implementation of macroprudential tools aimed at borrowers (such as loan-value and income-debt limits) have a statistically and economically significant association with small and young firms’ funding growth, especially those firms that are financially less healthy. These relationships are statistically and economically stronger for long-term (more than one year) funding growth. There is a similar relationships for firms’ sales and investment growth, suggesting that macroprudential tools have implications not just for the financial but also the real economy. The results do not seem that surprising as smaller and younger firms are also more affected by other types of macro policies, such as monetary policy and  capital controls.  On the other hand, the results are reassuring as it is the financially weakest firms that are affected, thus mitigating concerns on financial inclusion.

 

For a short, non-technical version of the paper, see the Vox column here.