Effects of Macro-Prudential Policies on Macro-Financial Stability

Abstract

The 2008 global crisis, which emerged in the financial markets and spread to the real economy, and the subsequent developments revealed the inefficiency of traditional monetary policies for financial stability and led to the use of macro prudential policy (MPP) tools that also target financial stability. As in many countries affected by the crisis, various MPPs have been implemented in the Turkish economy in order to prevent the spread of negative shocks arisen from credit expansion, capital movements affecting asset prices and credit financing quality, and the banking system throughout the economy. In this context, it becomes important whether MPPs, which increased after 2010 and require the efficiency of the credit-asset channel, contribute to macro-financial stability. Therefore, in this study, it is aimed to investigate the possible effects of MPPs implemented in the Turkish economy on selected variables such as capital movements, credit expansion, production and especially inflation for the period 2010-2021 using VAR analysis. The findings support the use of these policies for macro-financial stability.