The Impact of Macroprudential Policy Instruments on Financial Stability in Southern Europe

Eva Lorenčič, Mejra Festić


This paper is a contribution to the body of research examining the impact
of macroprudential policy instruments on financial stability. The following
hypothesis was tested (H1): Macroprudential policy instruments (household
borrowing costs; interbank loans as a percentage of total loans; loan to deposit
ratio; leverage ratio; and solvency ratio) enhance financial stability, as measured
by credit growth, in four southern European economies (Greece, Italy, Portugal
and Spain) from Q4 2010 to Q4 2018. The empirical results of this study suggest
that, of the investigated macroprudential policy instruments, household
borrowing costs, interbank loans as a percentage of total loans and loan to
deposit ratio exhibit the predicted impact on credit growth rate. Leverage ratio
and solvency ratio do not exhibit the expected impact on the response variable.
Moreover, only three out of the five explanatory variables are statistically
significant in the model. Consequently, it is not possible to confirm or reject the
hypothesis based on the available data and results.


macroprudential policy, macroprudential instruments, systemic risk, financial stability

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