Actions, contexts, mechanisms and outcomes in macroprudential policy design and implementation

DOI10.1177/0952076719827057
Publication Date01 Apr 2021
AuthorCaner Bakir
SubjectSpecial Issue Articles
untitled Special Issue: Mechanisms
Public Policy and Administration
2021, Vol. 36(2) 205–231
Actions, contexts,
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DOI: 10.1177/0952076719827057
outcomes in
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macroprudential
policy design and
implementation
Caner Bakir
Koc Universitesi – Rumelifeneri Kampusu Case, Turkey
Abstract
Causal mechanisms have received significant attention within the social sciences, and
policy design and implementation occupy a prominent place in public policymaking.
However, one area that has not received much attention in this literature is the
causal mechanisms that are able to link policy instruments with outcomes due to
operating within the appropriate contexts. This article seeks to fill this gap in the
literature. Drawing on realistic evaluation and comparative historical institutionalism,
and an exploratory case study on macroprudential regulation in Turkey between June
2011 and September 2016, this article argues that the success of macroprudential
instruments in securing of macrofinancial stability is most likely when they trigger
causal mechanisms that operate within the appropriate contexts.
Keywords
Causal mechanisms, macroprudential regulation, policy design, implementation, sys-
temic stability
Introduction
Mechanism-based explanations in analytical sociology (Hedstro¨m and Ylikoski,
2010) and the policy programme evaluation approach (Pawson, 2006; Pawson
and Tilley, 1997), informed by realist sociology (Bhaskar, 1979, 2008; Porter,
2015), have already acknowledged that socioeconomic outcomes and successful
programmes are the products of mechanisms operating in contexts, as have
Corresponding author:
Caner Bakir, Koc Universitesi – Rumelifeneri Kampusu Case, Rumelifeneri Yolu, Istanbul 34450, Turkey.
Email: cbakir@ku.edu.tr

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Public Policy and Administration 36(2)
political scientists (Falleti and Lynch, 2009; Gerring, 2010; Tilly, 2001). Although
this perspective has received signif‌icant attention within the social sciences, how the
interactions between various causal mechanisms and contexts inform policy design
and implementation, and how policy instruments – via the actions of actors –
trigger a variety of mechanisms that generate desired policy outcomes are not
suf‌f‌iciently recognised or appreciated by previous scholarship on policy design
and implementation (Bakir and Jarvis, 2017: 472, 475). Eminent scholars of
policy design have noted that complex policy mixes have increasingly been formu-
lated and implemented (Howlett, 2014; Howlett and Lejano, 2013; Howlett et al.,
2015) and that policy instruments af‌fect policy outcomes (Hood, 1986; Howlett,
2009, 2011; Salamon, 2002). However, our knowledge and understanding of such
causal mechanisms operating in various contexts that link policy instruments and
output are limited. More recently, Capano and Howlett (forthcoming) called for
further research on ‘f‌irst-order mechanisms’ that ‘are those psychological and
structural characteristics of policy actors which directly af‌fect their behaviour
and reaction to policy cues’, and ‘second-order mechanisms’ that relates to feed-
back ef‌fects in terms of target group responses to f‌irst-order mechanisms. This
article is a response to this call.
We understand from international and comparative political economists that, as
a new consensus of the transnational policy design community in the post-Global
Financial Crisis (GFC) era,
the idea of macroprudential regulation (MPR) moved to the centre of the policy
agenda and became the principal interpretative frame for f‌inancial technocrats and
regulators seeking to navigate the crisis and respond to it, not only in terms of
diagnosing and understanding it, but also in advancing institutional blueprints for
regulatory reform. (Baker, 2013: 113, my emphasis; see also Quaglia, 2013; Young,
2014)
However, how macroprudential program works through changing the reasoning
and responses of bankers and their customers to bring about intended macro-
f‌inancial stability outcomes is not examined. Thus, it is legitimate to ask several
mechanism-related questions: What were the appropriate contextual circumstances
that informed the policy workers’ introduction of the macroprudential policy
programme? What mechanisms were triggered by the implementation of the
MPR to operate in appropriate contexts; why and how did these mechanisms
inform the actions of stakeholders (i.e. banks and their customers) that served
to contain excessive bank credit growth and household leverage, thereby contribut-
ing to macrof‌inancial stability? This article aims to address these intriguing
questions.
Accordingly, the central purpose of this article is to provide an explanation and
exploration of causal mechanisms that are activated by elite policy actors in the
public sector through the introduction and/or implementation of policy instru-
ments to af‌fect target audiences’ behaviour. This article draws on the Turkish

Bakir
207
experience in the MPR tightening between June 2011 and September 2016.
Building on the usage of mechanisms in realist evaluation (Pawson and Tilley,
1997) and comparative historical institutional analysis (Falleti and Lynch, 2009),
it argues that the desired outcome of macrof‌inancial stability in Turkey was the
product of causal mechanisms that were triggered by macroprudential regulatory
measures operating within suitable temporal and non-temporal contexts: it was not
the MPR per se that contained macrof‌inancial risks and thereby contributed to
macrof‌inancial stability. It was these mechanisms, operating in appropriate con-
texts, activated through the introduction of the MPR that ultimately helped bring
about the desired policy goal. The intended outcomes of the MPR programme were
due to multiple causal mechanisms that changed the reasoning and responses of
bankers and their customers.
Turkey of‌fers an interesting empirical setting to investigate such mechanisms.
This is because the surge in global capital inf‌lows in 2010 resulted in, in the words
of a senior central banker, the accumulation of ‘macrof‌inancial risks’, which mani-
fested themselves in the form of ‘extreme volatility in cross-border capital f‌lows,
rapid credit growth and a sharp deterioration in the current account def‌icit’ (Kara,
2012: 1; Aysan, Fendoglu and Kilinc, 2014). This made the Turkish economy vul-
nerable to ‘sudden stops’ in hot money inf‌lows (Kara, 2016: 125–126). However it
is puzzling that, in contrast to the experiences of the 1994 and 2001 Turkish balance
of payments crises and the economic contraction in 2009, which were products of
these macrof‌inancial risks (Akyu¨z and Boratav, 2003; Bakir, 2009; Bakir and Onis,
2010), Turkey proactively contained the macrof‌inancial risks posed by the 2010
global capital inf‌lows. Specif‌ically, although the Central Bank took action through
a monetary policy mix, consisting of a combination of conventional and uncon-
ventional monetary policy tools, it was only after the establishment of the Financial
Stability Committee (FSC) in June 2011 and implementation of MPR tightening by
the Banking Regulation and Supervision Agency (BRSA) that credit growth and
household leverage were contained (Kara, 2016; Yagci, 2017; Bakir and Coban,
2018).1 Hence, the purpose of this article is to show how and why the MPR trig-
gered causal mechanisms within conducive temporal and non-temporal contexts
that contained credit growth and household leverage, thereby enhancing macro-
f‌inancial stability. The adoption and implementation of the MPR, from a mech-
anisms perspective, of‌fer a promising avenue to investigate these macroprudential
regulatory actions, various f‌irst-order and second-order mechanisms, and the tem-
poral and non-temporal contexts that enhanced macroprudential stability in
Turkey.
In the remainder of this article, I critically discuss insights from the literature on
causal mechanisms for policy design and implementation, with particular emphasis
on realistic evaluation scholarship and comparative historical institutional analysis.
Then I introduce the methodological approach and of‌fer operationalisation of
theoretical insights, with special reference to the MPR case in Turkey. The con-
clusion summarises the main f‌indings, limitations and directions for future
research.

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Public Policy and Administration 36(2)
What do realistic evaluation scholarship and historical institu-
tionalism offer to policy design and implementation?
As the former editors of Administrative Science Quarterly noted, in addition to
def‌initions of variables or constructs, ‘a theory must also explain why variables
or constructs come about or why they are connected’ (Sutton and Staw, 1995: 375,
my emphasis). An important and long-standing interest in causal mechanisms
research is ‘elucidation of the processes that generate the objects, events, and
actions we seek to explain’ (Ekstrom, 1992: 115). In contrast to the deductive
arguments of quantitative research, where explanation is based on statistical rela-
tionships among variables (e.g. regression coef‌f‌icients), mechanisms research aims
to of‌fer a systematic explanation for how the cause or input generates the ef‌fect or
outcome. ‘If a regression tells us about a relation between two variables—for
instance, if you wind a watch it will keep running—mechanisms pry the back of‌f
the watch and show how’ (Davis and Marquis, 2005: 336, emphasis in original).
Analytical sociology (Hedstro¨m, 2005; Hedstro¨m and Bearman, 2009; Hedstro¨m
...

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