Dampening Role of Macroprudential Policy as Shock Absorber: Evidence from Emerging Market Economies, under Review in Journal of Policy Modelling, Elsevier (ABDC-A)

• Start date जनवरी., 2025
• Completion date मई, 2025
• Sponsor Self-initiated
• Project leader Vrinda Gupta
• Focus

  This paper assesses the effectiveness of macroprudential policy (MPP) tools in shielding Emerging Market Economies (EMEs) from global financial shocks. Using a state-dependent local projection method, it found that MPP tightening helps moderate the adverse effects of VIX shocks on GDP, exchange rates and portfolio inflows, while also reducing the spillover of US monetary policy into EMEs’ monetary and inflation dynamics. However, not all tools are equally effective — capital buffers and SIFI restrictions show strong stabilizing effects, whereas liquidity buffers and LTV restrictions may initially exacerbate volatility. Overall, the results support MPPs as vital tools for macro-financial stability in EMEs.