The impact of macroprudential policies on capital flows in CESEE

• Studies dynamic effects of macroprudential policy (MPP) on macrofinancial variables. Uses novel regime-switching factor-augmented VAR model to identify shifts. Includes intensity-adjusted index for MPPs tracking strength adjustments. Credit growth and capital inflows decrease following a tightening MPP shock. Reactions are stronger in low-interest rate environment. In line with recent discussions the use policies (MPPs) respond cross-border risks arising from flows, this paper tries quantify which impact had flows Central, Eastern Southeastern Europe (CESEE). This region experienced substantial boom-bust cycle amid global financial crisis policymakers been quite active adopting already before that crisis. To study responses environment, we propose vector autoregressive (FAVAR) include an shocks. Our results suggest tighter translate into negative reactions domestic private sector credit gross inflow volumes majority countries analyzed. Level volatility often correlated positively, suggesting if were successful reducing inflows, they would also contribute lower flow volatility. We provide evidence most cases environment characterized by low interest rates, be more effective conventional monetary facing constraints.