Spillovers at the extremes: The macroprudential stance and vulnerability to the global financial cycle

Anusha Chari, Karlye Dilts-Stedman and Kristin Forbes
Authors registered in the RePEc Author Service: Karlye Dilts Stedman

Journal of International Economics, 2022, vol. 136, issue C

Abstract: The effects of macroprudential policy on portfolio flows vary considerably across the global financial cycle. A tighter ex-ante macroprudential stance amplifies the impact of global risk shocks on bond and equity flows, increasing outflows significantly more during risk-off episodes and increasing inflows significantly more during risk-on episodes. These amplification effects are more prominent at the “extremes,” especially for extreme risk-off periods and for regulations that target specific risks instead of generalized cyclical buffers. This paper estimates these relationships using a policy-shocks approach that corrects for reverse causality by combining high-frequency risk measures with weekly data on portfolio investment and a new measure of macroprudential regulations that captures the intensity of policy stances. Overall, the results support a growing body of evidence that macroprudential regulation can reduce the volume and volatility of bank flows but shift risks in ways that aggravate vulnerabilities in other parts of the financial system.

Keywords: Macroprudential policy; Global financial cycle; Risk shocks; International capital flows; High frequency data (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199622000149
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle (2022)
Working Paper: Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle (2022)
Chapter: Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle (2021)
Working Paper: Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:136:y:2022:i:c:s0022199622000149

DOI: 10.1016/j.jinteco.2022.103582

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().