Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle

Anusha Chari, Karlye Dilts Stedman and Kristin Forbes

No 29670, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E58 F3 G15 G28 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-mac
Note: IFM ME
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Citations: View citations in EconPapers (25)

Published as Anusha Chari & Karlye Dilts-Stedman & Kristin Forbes, 2022. "Spillovers at the extremes: The macroprudential stance and vulnerability to the global financial cycle," Journal of International Economics, .
Published as Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle , Anusha Chari, Karlye Dilts-Stedman, Kristin Forbes. in NBER International Seminar on Macroeconomics 2021 , Galí and West. 2022

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Related works:
Journal Article: Spillovers at the extremes: The macroprudential stance and vulnerability to the global financial cycle (2022)
Working Paper: Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle (2022)
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)
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