Whereas macroprudential policy has come to the fore since the Global Financial Crisis, with many regulators being given responsibility for such policy, the appropriate tools and the effectiveness of such tools remain open questions. We suggest that existing work on effectiveness of macroprudential policy may be vulnerable to bias due to omission of long run cointegration effects. This paper seeks to offer a fresh baseline for work in this area by adopting a cointegration framework which is robust to a variety of alternative techniques and compares favourably with non-cointegrated alternatives. We assess the impact of typical macroprudential policy interventions on house price and household credit growth in up to 19 OECD countries, using three datasets from the IMF and BIS, thus giving both a wider range of control variables and broader coverage of instruments than in most extant work. We find evidence that macroprudential polices remain effective in both short- and long-run at curbing house price and household credit growth even within a cointegration framework, albeit some tools are more effective than others. These include, in particular, taxes on financial institutions, general capital requirements, strict loan-to-value ratios and debt-to-income ratio limits.

Early warning systems (EWS) for banking crises generally omit bank capital, bank liquidity and property prices. Most work on EWS has been for global samples dominated by emerging market crises where time series data on bank capital adequacy and property prices are typically absent. We estimate logit crisis models for OECD countries, finding strong effects from capital adequacy and liquidity ratios as well as property prices, and can exclude traditional variables. Higher capital adequacy and liquidity ratios have a marked effect on the crisis probabilities, implying long-run benefits to offset some of the costs that such regulations may impose.