Leaning Against the Wind: An Empirical Cost-Benefit Analysis
Erlend Nier and
R. Gaston Gelos
No 15693, CEPR Discussion Papers from C.E.P.R. Discussion Papers
This paper takes a new approach to assess the benefits of using different policy toolsâ€”macroprudential and monetary policies, foreign exchange interventions, and capital controlsâ€”in response to changes in financial conditions. Starting from quantile regressions, we evaluate policies across the full distribution of future output growth and inflation using loss functions. Tightening macroprudential policy dampens downside risks to growth from loose financial conditions, and is beneficial in net terms. By contrast, tightening monetary policy entails net losses. These findings also hold when reacting to easing global financial conditions, while buying foreign exchange or tightening capital controls yields only small net benefits.
Keywords: Monetary policy; Macroprudential policy; Fx intervention; Capital controls; Cost-benefit analysis (search for similar items in EconPapers)
JEL-codes: E01 E52 E58 F31 G21 G28 O24 (search for similar items in EconPapers)
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