Publications Research

Macroprudential Policy and Economic Growth

YOU Yu, LIU Fangzheng, HUANG Zongye


Due to the global economic downturn and volatile international financial markets, preventing financial risks and promoting high-quality economic development have been two common goals of policymakers across the world. To achieve these goals, macroprudential policy has emerged as a key policy tool. In this paper, first, we analyze the theoretical mechanism through which macroprudential policy affects economic development, and argue that there is an inverted “U” relationship between leverage ratio in private sector and economic growth, while macroprudential policy can keep the leverage ratio at a reasonable level to promote economic development. Using data of 110 countries from 2000 to 2017, we construct a macroprudential policy index and sub-indexes using two approaches to empirically test the effect of macroprudential policy on economic growth. The results show that leverage ratio plays a core role in balancing the two policy objectives. Macroprudential policy can limit leverage ratio, and achieves the dual policy goals of financial risks prevention and stable economic growth through dynamic adjustment of the level of private credit (as a share of GDP).


Macroprudential Policy; Economic Growth; Financial Risk; Leverage Ratio; Private Credit