The global financial cycle and macroeconomic tail risks

Johannes Beutel, Lorenz Emter, Norbert Metiu, Esteban Prieto () and Yves Schüler

No 43/2022, Discussion Papers from Deutsche Bundesbank

Abstract: We study the link between the global financial cycle and macroeconomic tail risks using quantile vector autoregressions. Contractionary shocks to financial conditions and monetary policy in the United States cause elevated downside risks to growth around the world. By tightening financial conditions globally, these shocks affect the left tail of the conditional output growth distribution more strongly than the center of the distribution. This effect is particularly pronounced for countries with less flexible exchange rate arrangements, higher foreign currency exposures, and higher levels of private sector leverage, suggesting that exchange rate policies and macroprudential policies can mitigate downside risks to growth.

Keywords: Financial shocks; Monetary policy; Global financial cycle; Growth-at-Risk; International spillovers; Quantile VAR (search for similar items in EconPapers)
JEL-codes: C32 E23 E32 E44 F44 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-ifn, nep-mon, nep-opm and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:432022

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