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

Simon Lloyd, Alvaro Fernandez-Gallardo and Ed Manuel

No 145, ESRB Working Paper Series from European Systemic Risk Board

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 centre 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 materialise, 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. JEL Classification: E32, E58, G28

Keywords: growth-at-risk; macroprudential policy; narrative identification; quantile local projections (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-ban, nep-eec, nep-mon and nep-rmg
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Working Paper: The transmission of macroprudential policy in the tails: evidence from a narrative approach (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:2023145

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