  In line with the recent policy discussion on the use of macroprudential
measures to respond to cross-border risks arising from capital flows, this
paper tries to quantify to what extent macroprudential policies (MPPs) have
been able to stabilize capital flows in Central, Eastern and Southeastern
Europe (CESEE) -- a region that experienced a substantial boom-bust cycle in
capital flows amid the global financial crisis and where policymakers had been
quite active in adopting MPPs already before that crisis. To study the dynamic
responses of capital flows to MPP shocks, we propose a novel regime-switching
factor-augmented vector autoregressive (FAVAR) model. It allows to capture
potential structural breaks in the policy regime and to control -- besides
domestic macroeconomic quantities -- for the impact of global factors such as
the global financial cycle. Feeding into this model a novel intensity-adjusted
macroprudential policy index, we find that tighter MPPs may be effective in
containing domestic private sector credit growth and the volumes of gross
capital inflows in a majority of the countries analyzed. However, they do not
seem to generally shield CESEE countries from capital flow volatility.
