The risk management approach to macro-prudential policy

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

No 2565, Working Paper Series from European Central Bank

Abstract: Macro-prudential authorities need to assess medium-term downside risks to the real economy, caused by severe financial shocks. Before activating policy measures, they also need to consider their short-term negative impact. This gives rise to a risk management problem, an inter-temporal trade-off between expected growth and downside risk. Predictive distributions are estimated with structural quantile vector autoregressive models that relate economic growth to measures of financial stress and the financial cycle. An empirical study with euro area and U.S. data shows how to construct indicators of macro-prudential policy stance and to assess when interventions may be beneficial. JEL Classification: G21, C33

Keywords: financial conditions; growth-at-risk; macro-prudential policy; quantile vector autoregression; stress testing (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-cwa, nep-fdg and nep-rmg
Note: 373346
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20212565

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