By Gaston Gelos, Maria Soledad Martinez Peria, Erlend Nier, Fabian Valencia
While many emerging economies have been using macroprudential policy tools for some time, their use to safeguard financial stability was only embraced more widely in response to the global financial crisis. This column takes stock of what we have learned about macroprudential policy, and finds that it is effective in containing credit and housing price growth, with limited negative side effects on economic activity. There is evidence of persistence, nonlinearities, diminishing marginal benefits, and leakages. Macroprudential policy, FX intervention, and monetary policy can reinforce each other in emerging markets. Further research is needed on interactions and effects on financial system resilience, while more granular analyses could help quantify effects and improve calibration.