Credit Growth and the Effectiveness of Reserve Requirements and Other Macroprudential Instruments in Latin America

Over the past decade, economic policymakers in Latin America have adopted various macroprudential instruments to control the procyclicality of credit to the private sector and to contain systemic risks. In particular, reserve requirements have been actively employed. Despite their widespread use, little is known about their effectiveness and how they interact with monetary policy. This study presents evidence for Latin American countries on how reserve requirements influence bank credit growth. The results show that these instruments have a moderate and temporary effect and play a complementary role to monetary policy. (Audio: Department of Economic Publications)