Preventing financial disasters: Macroprudential policy and financial crises

The ultimate goal of macroprudential policy is to prevent and reduce the costs systemic financial crises, thus contribute promoting sustainable economic growth. However, despite active role played by such policies in recent decades, there still limited empirical evidence regarding whether prudential regulation effective enhance stability preventing mitigating crisis risk. This paper seeks close that gap studying relationship between both likelihood severity crises. contribution twofold. First, I show tightenings are successful at reducing frequency Moreover, this result holds even if implemented when economy already experiencing a boom or monetary conditions rather accommodative. point prevention mitigation booms as main transmission mechanism through which defuses Second, find enhances resilience system, dampening output losses associated with future latter implies not only makes crises less likely, but also painful.