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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
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Related works:
Working Paper: Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle (2022) Downloads
Working Paper: Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle (2022) Downloads
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) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:136:y:2022:i:c:s0022199622000149

DOI: 10.1016/j.jinteco.2022.103582

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