The transmission of macroprudential policy in the tails: evidence from a narrative approach

Alvaro Fernandez-Gallardo, Simon Lloyd and Ed Manuel

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We estimate the causal effects of macroprudential policies on the entire distribution of GDP growth for advanced European economies using a narrative-identification strategy in a quantile-regression framework. While macroprudential policy has near-zero effects on the center of the GDP-growth distribution, tighter policy brings benefits by reducing the variance of future growth, significantly boosting the left tail while simultaneously reducing the right. Assessing a range of channels through which these effects materialize, we find that macroprudential policy particularly operates through ‘credit-at-risk’: it reduces the right tail of future credit growth, dampening booms, in turn reducing the likelihood of extreme GDP-growth outturns.

Keywords: growth-at-risk; macroprudential policy; narrative identification; quantile local projections (search for similar items in EconPapers)
JEL-codes: E32 E58 G28 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2026-07-30
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Published in Journal of Applied Econometrics, 30, July, 2026. ISSN: 1099-1255

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