Macroprudential policy with learning from credit spreads

Yeow Hwee Chua, Zu Yao Hong

Research output: Working paper


We study how learning in credit markets affects the conduct of macroprudential policy. Due to the informational content of credit prices, there is heightened optimism when credit spreads are reduced through an unanticipated macroprudential policy. Consequently, lenders charge an even lower credit spread, amplifying the effects of the initial macroprudential policy. Borrowers experience different outcomes based on their financial position. While increased investment leads to a further reduction in credit spreads for low-leverage firms, high-leverage firm over-borrow, resulting in higher credit spreads that dampens the initial policy effects. Our findings suggest that in setting optimal macroprudential policies, regulators should internalize their actions on credit market expectations. How optimal policy should change is dependent on whether learning from credit spreads amplify or dampen the initial policy effects.
Original languageEnglish
Number of pages56
Publication statusPublished - 2023


  • Credit Cycles
  • Macroprudential Policies
  • Information Frictions
  • Financial Stability
  • Learning from Credit Spreads


Dive into the research topics of 'Macroprudential policy with learning from credit spreads'. Together they form a unique fingerprint.

Cite this