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The Effectiveness and Targeting of China's Macroprudential Policy

【Authors】
JING Zhongbo & FANG Yi
【WorkUnit】
JING Zhongbo (School of Management Science and Engineering, Central University of Finance and Economics, 100081)FANG Yi (School of Finance, Central University of Finance and Economics, 100081)
【Abstract】

This paper proposes the definitions of effectiveness and targeting of macroprudential policies based on the theoretical analysis of the interactive relationship between policy tools and policy targets. Then we apply the Qual VAR model to investigate the effectiveness and targeting of two widely used policy tools, Loan-to-Value (LTV) and statutory deposit reserve ratio (RR), in ensuring financial stability in China between 2005 and 2017. Here the financial stability is measured by the credit growth rate and the real estate price. Empirical results show that: (1) LTV targets the real estate price instead of the credit growth while RR targets both credit growth and real estate price. (2) Results of impulse response and variance decomposition indicate that LTV has greater impact on its target than credit growth while RR has significant impacts on both the credit growth and the real estate price. (3) From a dynamic perspective, the interactive relationship between policy tools and policy targets underwent structural changes when the Global Financial Crisis occurred in 2008. After the crisis, the effectiveness and targeting of macroprudential policies become more significant than before. The impacts of macroprudential policies on the real estate price turn to be procyclical from being countercyclical.
 
JEL:C32, E50, G28

【KeyWords】
Macroprudential Policy, Systemic Risk, Statutory Deposit Reserve Ratio, Loan-to-Value