Macroprudential capital regulation and fiscal balances in the euro area

Arbeitspapier

We examine the fiscal footprint of macroprudential policy in euro area countries arising through the bond market channel (Reis, 2021). Using local projections, we estimate impulse responses of the fiscal balance to an unexpected tightening in macroprudential capital regulation. Our findings suggest a dichotomy between country groups. In peripheral countries, the cyclically adjusted primary balance ratio deteriorates after a restrictive capital-based macroprudential policy shock. Since banks are important investors in domestic government debt, the shift in the public budget toward higher borrowing after the innovation might pose a threat to financial stability to the extent that sovereign risk increases. By contrast, in core countries, the cyclically adjusted primary balance ratio barely reacts to a sudden tightening in capital regulation.

Object Details

• ISBN: 978-3-95729-975-8
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Deutsche Bundesbank Discussion Paper ; No. 06/2024

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models ; Financial Institutions and Services: Government Policy and Regulation ; National Debt; Debt Management; Sovereign Debt ; International Law
• Subject: Fiscal footprint ; macroprudential capital regulation ; sovereign-bank nexus ; local projections

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hristov, Nikolay ; Hülsewig, Oliver ; Kolb, Benedikt
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2024

Further information

• Handle: http://hdl.handle.net/10419/284407
• Last update: 10.03.2025, 11:45 AM CET