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A Counterfactual Analysis of Regulatory Changes in Hungary: Could the FX Lending Crisis have been Avoided?

SiklĂłs, DĂłra

Akadémiai Kiadó

2016

H Social Sciences (General) / társadalomtudomány általában

Abstract
The main purpose of this paper is twofold. First, it aims to estimate the effect
of the tightening of regulatory capital requirements on the real economy in
periods of credit upswing. Second, it intends to show whether applying a
counter-cyclical capital buffer measure as set down in the Basel III rules could
have helped to reduce the pace of FX lending growth in Hungary, mitigating the
buildup of vulnerabilities in the run-up to the global financial crisis. In
order to answer these questions, we use a Vector Autoregression-based approach
with the aim of understanding the impact of shocks to capital adequacy in the
pre-crisis period. Our results suggest that although regulatory authorities
could have slowed down the increase in lending temporarily, they would not have
been able to avoid the upswing of FX lending by requiring counter-cyclical
capital buffers even if such a tool had been available and even if they had
reacted quickly to accelerating credit growth. Our results also suggest that a
more pronounced tightening might have reduced FX lending substantially, but at
the expense of real GDP growth. The reason is that unsustainable fiscal policy
led to a trade-off between economic growth and the build-up of new
vulnerabilities in the form of FX lending.

magyar

Article

PeerReviewed

info:eu-repo/semantics/article

text

http://real.mtak.hu/38251/1/032.2016.66.2.3.pdf

SiklĂłs, DĂłra (2016) A Counterfactual Analysis of Regulatory Changes in Hungary: Could the FX Lending Crisis have been Avoided? Acta Oeconomica, 66 (2). pp. 233-259. ISSN 0001-6373

http://real.mtak.hu/38251/

http://dx.doi.org/10.1556/032.2016.66.2.3