Global Financial Cycle, Household Credit, and Macroprudential Policies

We show that macroprudential policies dampen the impact of global financial conditions on local credit cycles. For identification, we exploit exogenous variation in the U.S. VIX and household and business credit registers in a small open economy, where banks depend on foreign funding and macroprudential measures vary over a full boom-bust cycle. When the VIX is low, tighter macroprudential policies (i) reduce household lending, notably for riskier (FX and high DSTI) loans and by banks dependent on foreign funding, (ii) increase local currency lending to real-estate firms, and (iii) dampen house prices and economic activity in areas with higher FX-loans.