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

In: NBER International Seminar on Macroeconomics 2021

Author

Listed:
  • Anusha Chari
  • Karlye Dilts-Stedman
  • Kristin Forbes

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Anusha Chari & Karlye Dilts-Stedman & Kristin Forbes, 2021. "Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle," NBER Chapters, in: NBER International Seminar on Macroeconomics 2021, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:14594
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    JEL classification:

    • F3 - International Economics - - International Finance
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G2 - Financial Economics - - Financial Institutions and Services
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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