A novel risk management perspective for macroprudential policy

Sulkhan Chavleishvili, Stephan Fahr, Manfred Kremer (), Simone Manganelli and Bernd Schwaab

Research Bulletin, 2021, vol. 87.1

Abstract: When considering the use of macroprudential instruments to manage financial imbalances, macroprudential policymakers face an intertemporal trade-off between facilitating short-term expected growth and containing medium-term downside risks to the economy. To assist policymakers in assessing this trade-off, in this article we propose a risk management framework which extends the well-known notion of growth-at-risk to consider the entire predictive real GDP growth distribution, with a view to quantifying the macroprudential policy stance. A novel empirical model fitted to euro area data allows us to study direct and indirect interactions between financial vulnerabilities, financial stress and real GDP growth, incorporating non-linear amplification effects among all variables. Our framework can support policymakers by facilitating model-based macro-financial stress tests and model-based assessments of when to adjust macroprudential instruments. JEL Classification: G21, C33

Keywords: financial conditions; Growth-at-risk; macroprudential policy.; quantile vector autoregression; stress testing (search for similar items in EconPapers)
Date: 2021-09
Note: 373346
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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