Impact of macroprudential policies on GDP
In this paper, Fernández-Gallardo et al. estimate the causal effects of macroprudential policies on the entire GDP-growth distribution by incorporating a narrative-identification strategy within a quantile-regression framework. They use a dataset with information on macroprudential policy actions, including announcement and enforcement dates and whether it has a counter-cyclical design, across advanced European economies.
We find that tighter macroprudential policy significantly and robustly boosts the left tail of GDP growth (i.e., reduces downside tail risk or ‘GDP-at-Risk’), while reducing the right tail (i.e., reducing upside tail risk), with broadly zero effect on the centre of the distribution.
As for the channels through which macroprudential policies work they find that:
- Macroprudential policies are effective at preventing both household and business credit booms.
- There is no significant evidence for the transmission of such policies through asset-price channels.
The transmission of macroprudential policy in the tails: evidence from a narrative approach
Authors: Álvaro Fernández-Gallardo, Simon Lloyd, Ed Manuel
From: Universidad Alicante, Bank of England
How do policymakers implement macroprudential policies?
In this paper, Haworth and Gai analyze the role of policymakers’ expectations in how timely and stringent implemented macroprudential policies are. They develop a model with cautious expectations where policymakers’ preferences are represented by a welfare function that takes into consideration the trade-off between growth and Growth-at-Risk (GaR). They find:
Caution reduces the expected efficiency of the macroprudential policy trade-off between growth and GaR. This leads cautious policymakers to pursue a looser policy stance than fully informed rational policymakers but to also respond more aggressively to risk signals. The optimal degree of caution falls as crises are experienced, tightening the optimal policy stance, and rises as policymakers forget crises, loosening the optimal stance.
Macroprudential Policymakers with Cautious Expectations
Authors: Cameron Haworth, Prasanna Gai
From: University of Auckland
