The effects of monetary policy on macroeconomic risk

Mario Forni, Luca Gambetti, Nicolò Maffei-Faccioli and Luca Sala

European Economic Review, 2024, vol. 167, issue C

Abstract: Monetary policy expansions significantly reduce macroeconomic downside risk, measured as the difference between the median and the 5th percentile of the industrial production growth forecast distribution. However, the effects are smaller in magnitude than those of credit spread shocks, which we find to be a major driver of fluctuations in downside risk. As a consequence, large policy interventions are required to stabilize risk originating from the financial sector, with undesirable consequences in terms of both price and output stability. These findings are obtained using US data and a novel econometric approach which combines quantile regressions and Structural VAR analysis.

Keywords: Macroeconomic risk; Uncertainty; Skewness; Forecast distribution; SVAR; Credit spreads shocks; Monetary policy shocks; Quantile regressions (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:167:y:2024:i:c:s0014292124001181

DOI: 10.1016/j.euroecorev.2024.104789

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