Àrees d’interès: Applied Macroeconomics, Macro-finance.
Altres àrees: Macroprudential Policy, Monetary Policy, Financial Crises.
The Transmission of Macroprudential Policy in the Tails: Evidence from a Narrative Approach
Resum: We estimate the causal effects of macroprudential policies on the entire distribution of GDP growth for a panel of 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 (i.e., GDP-at-Risk) 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 credit booms, in turn reducing the likelihood of extreme GDP-growth outturns. Overall, our results provide novel evidence about the causal effects of macroprudential policy on the distribution of future macroeconomic outcomes.