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...nstrument tightening in reducing procyclicality of financial risks, and conclude that many of the frequently used instruments have been effective in lowering systemic risks. Arregui and others (2013) extend the analysis to 2011Q4, focusing on the direct impact of the macroprudential policy stance, as opposed to policy changes on macroeconomic variables. They find that the benefit of macroprudential policies is to increase financial resilience and reduce the probability of crisis and output loss in the event of a crisis, while resulting in higher intermediation costs and lower long-run output. Kuttner and Shim (2012), using indices of housing-related measures for 57 countries in 1980–2011, conclude that macroprudential policies are effective in dampening housing prices and credit. Beirne and Friedrich (2013), instead, find a limited effect of macroprudential policies on capital inflows in 39 countries over 1999–2009. Ostry and others (2011) show that foreign exchange (forex) related instruments and capital controls can reduce the share of forex lending in domestic credit, while other prudential measures seem to be effective in dampening aggregate credit booms. Dell’Ariccia and others (2013) provide illust...

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...s from two main drawbacks. First, reduced-form models do not capture well the interaction between macroeconomic, financial and policy variables. Furthermore, since in most cases macroprudential tools have been introduced only in recent years in policymakers’ toolkit, there is not much data to assess their effectiveness and transmission channels empirically. Moreover, macroprudential tools have mostly been used in conjunction with other policies, such as monetary policy, so that it is difficult to isolate their effects. Using cross-country data over the past three decades in panel regressions, Kuttner and Shim (2012) analyse the degree to which macroprudential policy tools have been effective in mitigating housing price and credit cycles, after controlling for country-specific structural factors and macroeconomic variables. They find that decreases in loan-to-value ratios are associated with lower house price growth, and that limiting debt-service-to-income ratios and increasing loan loss provisioning requirements attenuate housing credit growth. Using panel data regressions, Vandenbussche et al. (2012) find that changes in the minimum capital adequacy ratio and non-standard liquidity measures, namely mar...